Government to sell QinetiQ stake after scrapping float

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The Government confirmed yesterday that it had been forced to put the planned stock market flotation of its technology arm, QinetiQ, on ice because of tough market conditions.

Instead, it plans to sell off a stake in the business to a "strategic partner", most likely to a private equity firm, and hopes to float QinetiQ in two to four years' time.

The Defence minister, Dr Lewis Moonie, said he thought a flotation, "under current market conditions", would not achieve "best value" for the taxpayer. He added: "We have, therefore, decided that the strategic partner route offers the best potential for a transaction within 2002, offers best value for the taxpayer and meets our objective of a successful public-private partnership".

All 9,000 of QinetiQ's staff are expected to be offered a share ownership incentive scheme once a partner has been identified. The Government, which has already held "exploratory" discussions with a number of potential investors, is hoping to have signed a partner up before the end of 2002.

Carlyle Group, a US private equity house in which the former prime minister John Major is involved, is thought to be putting together a proposal.

Potential partners have until Friday next week to table formal expressions of interest although proposals from defence manufacturers or anyone, "who would present an obvious security risk", will not be entertained.

The Government said yesterday that the transaction would be structured to ensure it retained a "significant" stake, possibly a majority holding.

QinetiQ, which some have valued at around £500m, offers consultancy and test facilities mainly to the Ministry of Defence but also to commercial customers. Its portfolio of intellectual property has gone toward the creation of liquid crystal displays, infra-red sensors and the technology for flat panel speakers.

QinetiQ, which has sales of around £800m a year, was one of two units spawned from DERA, the Government's Defence Evaluation and Research Agency. The other, known as DSTL, remains part of the MoD and handles projects like chemical and biological defence.