AEA technology, the engineering arm of the former Atomic Energy Authority, was sold in 1996 for pounds 224m. It was so badly undervalued that by the following day it was worth pounds 258m, and its shares have since done so well that it is now worth pounds 622m.
The government advisers who valued the company, Schroders, profited through their mistake because of a pounds 2m "success fee" for selling at or above their estimated price. Companies linked to Schroders and another firm of consultants on the deal, Cazenove, bought shares in AEA technology at bargain basement prices. The advisers' fees totalled pounds 8.1m excluding VAT.
The Department of Trade and Industry (DTI) did not seek an independent assessment of the valuation on which Schroders' fee was based.
Strict rules should have been set for the sale of shares to Cazenove companies, the report said. "As such allocations may result in considerable profit for those who receive the shares, it is important for vendor departments to ensure that objective criteria for allocation are published in advance of the sale and that the allocations are made in accordance with those criteria," it said.
If the department had held back 40 per cent of the shares until this year, their value would have risen by pounds 160m before they were sold, a report from the Public Accounts Committee (PAC) said. The pounds 224m raised by the sale was also tempered by the pounds 121m cost of a restructuring exercise which took place shortly beforehand. Without restructuring, the business would have been unsaleable, the committee found.
The report said the DTI could have obtained better value for money. It should have considered phasing the sale and the fact that it did not oversee the sale of shares to its advisers was a cause for concern.
David Davis, chairman of the PAC, said the current government should learn from its predecessors' mistakes. The decision to sell the whole organisation at once was not put to ministers, he added. "This sale was flawed in a number of ways and does not represent the best deal for the taxpayer."
AEA Technology was floated for 280p a share. The flotation was expected to make a premium of 20p a share for investors, but on the day of the flotation the stock market valued the shares at 323.5p, an instant profit of 43.5p. At the end of May this year the 32 million shares were worth 777.5p each.Reuse content