Rolls-Royce's submarine business could be nationalised

The government is open to nationalising troubled engineering group Rolls-Royce's nuclear submarine business if things get any worse for the company.

The Financial Times reports on Monday that the government has drawn up plans to protect the UK's national interest in Rolls-Royce, after five profit warnings from the company in two years.

Its share price has plummeted in line with the warnings and prominent backer Neil Woodford recently threw in the towel.

The government is now worried that the engine maker - which is separate from the luxury car business - could face a hostile bid from a foreign investor. The Sunday Times reports that Whitehall is "on alert" over US activist investors ValueAct building a share in the company.

The Ministry of Defence is reluctant to see Rolls-Royce fall into foreign hands because it is a major supplier of the Navy. Rolls-Royce builds the nuclear reactors that power Royal Navy submarines. It's also the biggest employer in Britain's aerospace sector, according to the FT.

The FT says nationalising the company is just one option. Another is merging Rolls-Royce's submarine division with with BAE Systems, Britain's largest defence company.

Rolls-Royce has been nationalised before, in 1971 by Conservative Prime Minister Ted Heath. It was during this period that the iconic car business was spun out as a separate company, in 1973. Rolls-Royce, which now makes plane and ship parts, was privatised again in 1987.

As part of the re-nationalisation, the government put in place checks such as a "golden share" agreement that meant the company couldn't sell over 25% of the nuclear business without approval. There's also a 15% cap on foreign ownership and at least half the board, including the CEO, must be British.

But the government is worried that the bombed-out share price could give investors a good case to push for this veto to be waved - hence the backup plans.

Rolls-Royce shares are up over 1.5% Monday morning on the report.

A spokesperson for Rolls-Royce told Business Insider over email: "We are in contact with Government as a matter of routine and regularly keep them updated on our performance and progress."