Government to face the flak as QinetiQ heads for £1bn float

QinetiQ, the partially privatised defence laboratory group, is being groomed for a £1bn-plus flotation later this year.

QinetiQ, the partially privatised defence laboratory group, is being groomed for a £1bn-plus flotation later this year.

This would be the biggest float of a technology company on the London Stock Exchange since the bubble burst in 2000, but it could also lead to claims that the Government had sold QinetiQ on the cheap.

In 2003, Carlyle paid £150m for just under a third of QinetiQ. If the US private equity company, which has close links to the Pentagon, was to offload its stake through the listing, it would have more than doubled its money.

While Carlyle holds a minority stake, it controls the majority voting rights in QinetiQ under the public-private partnership with the Ministry of Defence. In effect, therefore, it can call the shots on when the company is listed.

The MoD owns 56 per cent of QinetiQ, which is chaired by Dame Pauline Neville-Jones, a BBC governor and former chairman of the Joint Intelligence Committee. Some 13 per cent of QinetiQ shares are owned by employees, so a float would lead to a windfall for the 9,000 staff, including 7,000 scientists.

QinetiQ hired investment bank Morgan Stanley last year to conduct a "readiness study" to see whether the company was in a fit state to be floated.

Sir John Chisholm, the chief executive of QinetiQ, said: "Broadly speaking they ticked the box. Late 2005 is getting into the window [for a float]. Obviously, the company is doing well, which is encouraging from the point of view of an IPO. But for an IPO to happen, there needs to be three things: the company needs to be doing well, the markets have to be receptive and the shareholders have to be in a mood to sell."

The company is performing ahead of expectations. In its last set of accounts to the year ending 31 March 2004, QinetiQ revealed a £56.7m operating profit on a turnover of £795.4m. It is debt free.

This has prompted QinetiQ's bosses to consider an early float, which had originally been penned in for some time between 2006 and 2009.

While the Morgan Stanley report said QinetiQ was fit to be floated, the company must make some changes to its management to meet the requirements of the Combined Code on corporate governance.

Sir John said: "We have recently appointed two new non-executive directors - Nick Luff [the chief finance officer at P&O] and Peter Fellner [the chairman of biotech company Vernalis] - and we will be doing more."

QinetiQ would use the proceeds of a float to fund an acquisition spree - possibly in the US. It bought technology firm Foster-Miller and Westar Aerospace & Defence last year. Sir John said: "The US remains a fast-growing market that has a great propensity to buy exactly what we have to offer."