The Ministry of Defence is to sell half its shareholding in QinetiQ as part of the flotation of the technology group, which is set to be unveiled this week.
The Government stake will be cut from 56 per cent to below 30 per cent, bringing in up to £300m, while the US private equity fund Carlyle Group will cut its holding from about 34 per cent to 17 per cent, making about £180m.
Another £150m of new money is expected to be raised, taking the total flotation to around £600m. QinetiQ is expected to achieve a stock market valuation of around £1.1bn.
The amount of shares being sold will add to the clamour from some quarters that shares should be sold directly to the public, as this is the first stock market privatisation for nine years.
However, advisers to the Government say that the cost of a public offer would be in the region of £23m, which was seen as a bad deal for taxpayers. Instead, the shares are being placed with institutional investors.
Financial advisers have said that small investors may be able to buy into the offer if private client stockbrokers apply for shares, acting as City institutions, and then sell them on.
The privatisation of QinetiQ, which used to be part of the Defence Evaluation and Research Agency, has been dogged with controversy.
In 2002, the Government sold a minority stake in the company to Carlyle, a group advised by both former the prime minister John Major and former US president George Bush, for just £42.4m. Carlyle will make eight times its original investment while QinetiQ's chairman, Sir John Chisholm, will pocket £24m.
However, the MoD has argued that it is getting value for money. It has already received £230m from QinetiQ through loan repayments and the receipts from the initial sale. Its returns will now go past £500m and it will retain a stake worth about £300m.Reuse content