Qinetiq flotation to value group at up to £1.3bn

The flotation of Qinetiq, the government-owned defence technology group, is set to value the company at up to £1.3bn - some £200m more than had been expected.

The Ministry of Defence and its advisers set a price range of 165p to 205p a share yesterday, giving the business a value of between £1.095bn and £1.325bn.

Qinetiq shares were trading in the grey market last night at 196p, suggesting the company is likely to be priced somewhere near the top of its price range.

At the mid-price of 185p, the MoD and the private-equity group Carlyle, both of whom are selling down 49 per cent of their holdings, will raise £274m and £150m respectively. After the flotation, the MoD will remain the biggest shareholder with a 23.6 per cent stake worth £287m. Carlyle's holding will come down to 12.8 per cent, worth £155m.

Sir John Chisholm, Qinetiq's executive chairman, will emerge from the sell-off, the first flotation of a state asset since Labour came to power, with a £24m stake; the chief executive Graham Love will own a £20m shareholding. Some 8,000 of the group's 11,500 employees will each hold share options worth about £3,000 and all employees will be gifted £500 in free shares.

The Government has come under pressure to allow retail investors to buy shares in the float. But Qinetiq reiterated its view the proceeds would be best maximised for the taxpayer by restricting the offer to institutions. The bookbuilding began yesterday and the shares are due to start trading on 10 February.

The best that small shareholders can expect is that part of the offer may be reserved for retail brokers who could then distribute the shares for a small fee.

Mr Love said the management of Qinetiq had not been affected by the furore over the float. Fees associated with the flotation amount to £25.6m and are mainly payable to Qinetiq's three investment banking advisers, Merrill Lynch, JP Morgan Cazenove and CSFB.Half-year results showed operating profits rose 40 per cent to £37.3m in the six months to the end of September on sales up 28 per cent to £473.5m.