BAE Systems and Rolls-Royce expect US investment following change to regulations

The UK government has agreed to relax foreign ownership limits on BAE Systems and Rolls-Royce, paving the way for the two companies to gain greater access to capital from hungry US investors.

UK secretary of state for trade and industry Patricia Hewitt has removed the 49.5% limit on aggregate foreign holdings for the two companies. The change, which follows two rises in the ownership ceiling from 15% since 1989, was accompanied by an easing of rules requiring all executive directors to be British. Now only a majority, including chairman and chief executive, must have British nationality. 

"The government's agreement to relax these restrictions is most welcome and reflects the development of the company into a more global business," says BAE chairman Sir Richard Evans.

BAE's foreign ownership amounted to 48.89% on 25 March, while at Rolls-Royce it stood at 44.6% on 26 March. Both have complained that frequent breaches of this limit have dampened demand for shares from US investors.

Rolls-Royce points out that its share price - which since 11 September has often languished below the £1.70 at which it was privatised in 1987 - has suffered from these limits. After news of the government move, the company's shares closed up 5% at £1.88.

Ownership rules would still block a foreign takeover of these UK companies since Hewitt has maintained the 15% ceiling on any single foreign holding and the government has a "golden share".

Source: Flight International