Mandarins fear American raid on Rolls-Royce

That the United Kingdom is making contingency plans would seem to indicate that the government is not clear whether the current barricades (there is a golden share preventing takeover, but it is not clear whether this would be enforceable under European Union law) would be sufficient to stop a foreign takeover, so it is looking after its own (national security) interests, rather than necessarily seeking to block a takeover of Rolls-Royce per se.

Rolls-Royce declined to comment. Rolls-Royce builds the nuclear reactors that power Royal Navy submarines.

Among ministers’ concerns about Rolls-Royce is the accumulation of a 10% stake in the company by ValueAct, a US-based hedge fund, which is pushing to gain board representation.

Rolls-Royce Chief Executive Warren East had ruled out any plans to “sell big chunks” of their business in November amid pressure from activist investor ValueAct for the company to divest its marine engine business and focus on its main aero-engine business.

The government is now anxious that the engine maker – which is separate from the luxury vehicle business – could face a hostile bid from a foreign investor. The government is also considering options of merging some or all parts of Rolls-Royce with BAE Systems – UK’s largest independent aerospace and defence company. It also builds key elements of UK’s Trident nuclear programme.

Sandy Morris, analyst at Jefferies, said Rolls was investing £750m a year in research and development and £600m on new infrastructure.

‘We are in contact with Government as a matter of routine and regularly keep them updated on our performance and progress, ‘ Rolls-Royce said.

“I think the government being totally on top of Trident and how they’re going to manage it and the supply chain is only sensible” he said.

“To suggest that nationalization is even a thought process in the minds of anyone let alone that it may become a possible issue is irresponsible in the extreme”.

“Yes, Rolls-Royce may have a United States shareholder breathing down its neck, and that [ValueAct] has been reported as wishing to see parts of the group hived off. The sum of the parts is what makes Rolls-Royce what it is and provides it with global strength”. “We continue to work closely with the company through a range of programs to develop its world-leading technologies and support British innovation”.

Standard Life’s head of United Kingdom equities told BBC Radio on Monday that the United Kingdom government plan was “interesting” but it did not mean the situation at Rolls-Royce had changed.