Qinetiq's £1bn flotation 'will sell taxpayer short'

The Government was accused of short-changing the taxpayer yesterday as it gave the go-ahead for the £1bn flotation of the defence technology company Qinetiq.

The sell-off will produce an 800 per cent profit for Carlyle, the private-equity firm which paid £34m in 2002 for a 31 per cent stake. The shareholding is now worth £300m.

Opposition spokesmen demanded to know why the US-based company had been able to make such a profit from its investment and what safeguards the Government was putting in place to safeguard Qinetiq's expertise for the UK taxpayer. Qinetiq was formerly part of the Defence Evaluation Research Agency, which boasts carbon fibre, liquid crystal displays and microwave radar among its inventions.

Gerald Howarth, the Conservative defence spokesman, described the sell-off as "a desperate move to provide a quick buck for Gordon Brown" while Vince Cable, the Liberal Democrat Treasury spokesman, said: "I am seriously worried that the Government massively miscalculated the value of its old assets and has sold the taxpayer short."

The flotation next month will cut the Government and Carlyle's stakes by half to 25 per cent and 15 per cent respectively. Employees will own 10 per cent, leaving a little more than half the equity in the hands of outside institutional investors. Sir John Chisholm, the executive chairman, will have a shareholding worth £22m while his chief executive Graham Love will have an £18m shareholding. Both will be locked in to prevent them selling shares early.

Qinetiq will raise £150m of new money through the offer, £45m of which will be put into its pension fund to reduce a £145m deficit. The rest will be used to lower its £300m of debt.

The Government will retain a "golden share" in Qinetiq, enabling it to limit any individual investor to 3 per cent and any institution to 10 per cent on national security grounds. Lord Grayson, the Defence Procurement minister, said it was "absolute rubbish" to claim taxpayers had been short-changed. Since 2002 the Government had received £230m back from Qinetiq and would retain a shareholding nearly twice that of Carlyle in future.