Carlyle in line for £350m from QinetiQ float

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The Independent Online

Carlyle, the US private-equity firm, stands to benefit from a £350m windfall after it emerged that the Treasury has approved the controversial flotation of QinetiQ, the Ministry of Defence's technology research arm.

The initial public offering could go ahead within weeks. The float would trigger a payout not only for Carlyle but also for scores of managers at the part-privatised enterprise. Carlyle took a 31 per cent holding in QinetiQ for £42m in December 2002, leaving the Government with 56 per cent and 13 per cent in the hands of directors and employees.

A price tag of £1.1bn would hand a £354m windfall to the US outfit. This could prove particularly contentious as Carlyle holds its stake in QinetiQ through various special-purpose vehicles registered in Guernsey, which is outside the jurisdiction of the Inland Revenue.

Up to 230 executives would also be in line for a potential £145m payout on an enhanced stake initially bought for £1m. Sir John Chisholm, who was made chief executive of the company when it formed in 2001 and who became executive chairman in September 2005, could see his initial investment of £129,000 now worth £22m.

According to a report yesterday, formal ministerial approval is still pending although it was understood that Treasury officials had signed off on the deal, removing the last major hurdle.

A spokesman for the Treasury said it could not comment on speculation. " There has not yet been a ministerial decision. Civil servants give advice following consultation with stakeholders but the decision rests with ministers."

The MoD said issues of timing of a flotation were "speculative". A spokesman said: "The Government said in 2001 when it privatised QinetiQ that it was looking at three to five years so in terms of the window that is good guesswork.

"The Treasury does need to give formal approval but the MoD and the Treasury are as keen as each other for this to go ahead."

The flotation could produce a £616m windfall for the Government.

QinetiQ provides hi-tech defence and civilian systems and support. It is best known for its development of the Short Take Off Vertical Landing (STOVL) version of the US-UK Joint Strike Fighter aircraft. Since November, defence stocks in the US and the UK have increased substantially.