Page last updated at 11:15 GMT, Tuesday, 10 June 2008 12:15 UK

MPs slate Qinetiq privatisation

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Qinetiq focuses on the security and defence market

MPs have attacked the sell-off of defence firm Qinetiq, calling it "profiteering at taxpayers' expense".

The Ministry of Defence (MoD) pushed through the deal at the "worst possible time", losing out on 90m, the Public Accounts Committee argued in a report.

The MOD countered that this was "pure speculation" and asserted that the sale had succeeded in raising 800m.

Qinetiq also denied the Committee's accusation that its managers had profited at the taxpayer's expense.

The firm's senior managers received a return of 200 for every pound they invested, while the taxpayer got 9 back for every pound they put in, the report said.

The MOD has been accused of selling off a stake in the firm to private equity firm Carlyle in 2003 too cheaply.

"The charge of commercial naivety makes a good soundbite but is not supported by the facts," said Minister for Defence Equipment Baroness Taylor.

The sale had also secured the future of the company's 13,000 staff, the MOD said.

'Weaknesses'

Committee chairman Edward Leigh agreed that the privatisation had successfully protected "the viability of this business of strategic importance to UK defence interests".

But he said the MoD conducted the 2003 deal "like an innocent at a table of cardsharps, with the taxpayer the fall guy losing out on nearly 100m".

The deal involved two stages; firstly a minority stake was sold to Carlyle in 2003 before the flotation in 2006.

The MoD retained a 19% stake in the business, which it anticipates selling.

Never again should public servants be permitted to pursue such a self-interested stratagem
Edward Leigh MP

While the stock exchange listing was conducted well in a strong market, there were "weaknesses in the 2003 sale process," the committee concluded.

The MoD started the competition for a strategic partner in "poor" market conditions and before the terms of Qinetiq's most significant contract had been agreed, it found.

The department relied on Carlyle to devise the incentive scheme for Qinetiq's management but failed to establish "safeguards" to protect the public interest.

The upshot was that Qinetiq bosses were able to influence the design of their incentives, netting them considerable amounts of money, the committee said.

At the time of the firm's flotation, the top 10 managers of Qinetiq held shares worth 107m after initially investing 540,000 of their own money.

The existing senior leadership has driven the performance of the company that has resulted in excellent returns for all shareholders
Sir David Lees, Qinetiq chairman

"Never again should public servants be permitted to pursue such a self-interested stratagem," he said.

In light of this, Mr Leigh said the behaviour of Qinetiq's managers at the time "does not fill me with confidence that Qinetiq can be relied upon to advise the MoD on what military equipment to buy".

Management confidence

Ministers must remain "vigilant" to "guarantee the impartiality of Qinetiq's advice", he added.

Qinetiq said it strongly denied any accusations that its managers behaved "inappropriately" during the process or that they had benefited unfairly from the terms of the privatisation.

It said ministers had received extensive and independent advice before proceeding with the first phase of the privatisation.

Furthermore, it said that the MoD had approved the incentive scheme after it had been negotiated with Carlyle in its position as preferred bidder for the Qinetiq stake.

Qinetiq said the firm's privatisation had generated nearly 1bn in returns for the taxpayer.

"The existing senior leadership has driven the performance of the company that has resulted in excellent returns for all shareholders. The Board has every confidence in this senior team."




SEE ALSO
US market boosts Qinetiq profits
28 Nov 07 |  Business
Qinetiq deal 'cost UK taxpayers'
23 Nov 07 |  Business
Market debut for Qinetiq shares
10 Feb 06 |  Business
Reid defends Qinetiq's sale price
27 Jan 06 |  Business
Qinetiq names float price range
25 Jan 06 |  Business

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