23 November 2007
The part-privatisation of Qinetiq, the Ministry of Defence's research arm — where shares owned by its top ten managers rocketed to £107m — is to be heavily criticised in a National Audit Office report.
The NAO is to criticise the privatisation in a report published on November 23 looking into the management share scheme and the reasons for Qinetiq's increase in value.
It was expected to highlight the gains made by Qinetiq chair Sir John Chisholm, whose initial £129,000 investment brought him assets worth around £22m at the time of the flotation, and chief executive Graham Love, who made £6m from the sale of 2.9 million shares last February, a year after the sale.
The spending watchdog was also to question the value for money to the public purse of the privatisation scheme, in which US private equity firm Carlyle Group's £42m investment grew by 700% to a £300m profit.
Qinetiq was formed in 2001 when the MoD split the Defence Evaluation and Research Agency in two. In 2003, the MoD sold 37.5% of the shares and control of Qinetiq to the Carlyle Group.
The defence firm was floated on the stock exchange in February 2006, bringing a huge windfall to ten managers, whose shares increased in value more than 200 times over from an initial £500,000 investment. Qinetiq was valued at £1.3bn at the time of the flotation.
The MoD received £155m from the shares sold to Carlyle and £350m from the flotation, keeping a 19% stake in Qinetiq. In June, ministers revealed that the firm was the MoD's biggest defence contractor, with 779 deals worth more than £5.1bn in total.
Acting Liberal Democrat leader Vince Cable said: 'The privatisation of Qinetiq is yet another example of the callous disregard this government has for public money. Not only was the firm sold off below its value but its chief civil servant made a total of £22m.
'The financial naivety of the government, alongside a dogged desire to push through the sale of Qinetiq as quickly as possible, has done nothing but benefit the private investor at the cost of the British taxpayer.'
The government has previously defended the Qinetiq managers' gains, saying they were linked to the growth in value of the business.
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