Reid poised to announce £1bn flotation of Qinetiq

The Government is expected to give the go-ahead today for the controversial £1bn sale of the defence technology agency Qinetiq, the first flotation of a state-owned business since Labour came to power in 1997.

Barring a last-minute delay, the Secretary of State for Defence John Reid will announce that the Government and its private-sector partner, the US private-equity firm Carlyle, will reduce their holdings through an offer of shares to institutional investors.

Carlyle, which owns 31 per cent of Qinetiq, will net a profit of about 800 per cent or £300m on its initial £42m investment. But the taxpayer will also see a big return, as the Ministry of Defence's 56 per cent stake will be worth about £560m compared with the £500m that the whole of the business was valued at in 2002 when Carlyle originally bought in.

Sir John Chisholm, Qinetiq's executive chairman, will be left with a stake worth £24m, compared with his original investment of £129,000. The organisation's 11,000 staff, who own 13 per cent of the company, will also get big windfalls.

The flotation, which could take place next month, is likely to see the MoD and Carlyle reduce their stakes by about one-half.

Qinetiq was spun off in 2001 from the Defence Evaluation Research Agency, the government organisation which invented carbon fibre, liquid crystal displays and microwave radar. It still gets a large chunk of its revenues from a 25-year deal to carry out test and evaluation work for the MoD, but an increasing slice of its income comes from commercial exploitation of military technology and the US market, which will account for one-third of the company's revenues this year.

Sir John insists Qinetiq is not like another former government agency, AEA Technology, whose share price collapsed after flotation, arguing that its R&D work is funded, it is more diversified and has had greater experience in transferring know-how from military to civil applications.