Small investors snap up £80m stake in QinetiQ

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The Independent Online

Private investors won a stake worth nearly £80 million in military research group QinetiQ today in the first privatisation by the Labour Government.

QinetiQ floated on the London stock exchange with an initial public offering of 200p, valuing the former Ministry of Defence-owned company at £1.3 billion - at the top end of previous forecasts of between 165p and 205p.

It had been feared that major City institutions would snap up all the shares on offer at the expense of private investors, but stockbrokers were allocated 6% of the company for small investors.

The controversial flotation saw the MoD reduce its stake in QinetiQ to 23.9%, while US venture capitalist Carlyle retained a 13% holding.

Conditional dealings in QinetiQ shares jumped to 219.5p when the stock market opened in London today.

The decision to float the company - which can trace its heritage from the birth of powered flight in the UK at Farnborough through the development of radar at Malvern during the Second World War - led to accusations that Carlyle gained its stake in the business too cheaply.

The US firm bought 30.5% of QinetiQ for £42 million in 2002 but banked £227 million from today's listing. That could rise to £260 million if its option to sell further shares at its flotation price is realised.

The way in which the privatisation was handled was condemned by Labour former defence procurement minister Lord Gilbert.

He said on BBC Radio 4's Today programme: "We are looking at a situation in which the former chairman and chief executive of Dera (the former Defence Evaluation and Research Agency) put up something of the order of £120,000 and is putting in his hip pocket, so reports say, £23.6 million on virtually no risk to himself, which is a profit of 200 times the value over a period of three years.

"It is very much akin to Boris Yeltsin handing out the assets of the old Soviet Union to his chums at knockdown prices."

The sale was defended by current Defence Procurement Minister Lord Drayson.

"This was a wasting asset. This was a research establishment which needed further investment if it was going to be able to exploit the developments which were going to take place within the industry," he told the programme.

"The way in which the management was incentivised through the management share scheme has led to this company developing tremendously well over the past three years and, as a result, the taxpayer has benefited remarkably."

The privatisation made around £290 million for the Government today, which Lord Drayson said was "an excellent result" for the taxpayer, Armed Forces and UK economy.

And he rejected claims that private investors had been denied the chance to buy into QinetiQ, which raised £150 million through the offer.

"We always said that applications from private client brokers would be given fair and reasonable consideration," said Lord Drayson. "I am very pleased that we have been able to achieve this."

Demand for shares in QinetiQ was high and stockbrokers offered to secure blocks of shares for small investors by bulk-buying to compete with larger City institutions.

QinetiQ chairman Sir John Chisholm said: "I am delighted with the level of interest shown by investors in this offering and by their appreciation of the potential of our business model."