The nuclear submarine business of Rolls-Royce could be nationalised if the financial crisis at the company deepens after five profit warnings in the past 20 months. 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.

The Ministry of Defence (MoD) prepared the emergency plans in October and has a range of options, which the government could avail to protect its interests in the 100-year-old company, in the event of a hostile takeover bid by foreign investors. People familiar with the matter told Financial Times that "officials are concerned that Rolls-Royce's management has no substantial experience of defending against hostile takeovers".

The MoD has suggested acquiring a stake in the Derby-headquartered firm, which could be costly for the government as 25% shares would be needed to bring any operational changes. Although the merger with BAE systems is under consideration, the government's reliability on the aerospace and defence company would only increase. Further, the MoD has suggested bringing in state-owned funds so that Rolls-Royce chief executive Warren East could get more time to implement his overhaul plan.

Measures introduced when Rolls-Royce was privatised in 1987 bar the company from selling 25% or more of its net assets or its nuclear division without the government's go-ahead. There is also a 15% ceiling on foreign ownership.

Defence Procurement Minister Philip Dunne had last week said the government was "concerned that Rolls-Royce performs and is capable of performing its nuclear obligations. We would definitely take a view in the event there was corporate activity".

"Rolls-Royce is a major contributor to the UK economy and is an important supplier of defence equipment to the government," a spokesperson was quoted as saying.

Rolls-Royce's nuclear division is estimated to generate around £500m ($760m) in revenue every year from military business. It also builds key elements of UK's Trident nuclear programme.