THE SALE OF AEA TECHNOLOGY
RESTRUCTURING
43. Restructuring AEA Technology between April 1994
and March 1996, and separating them from the United Kingdom Atomic
Energy Authority before the sale, cost £121 million.
Most of the money was spent on premature retirements and redundancy
and on relocation costs. One of the objectives of rationalisation
had been to improve accounting systems. In December 1995, however,
after the bulk of the restructuring, a report indicated very serious
shortcomings in AEA Technology's financial management information.
Schroders concluded that the company could not be floated by the
then target date of June 1996 because AEA Technology's financial
information would not meet the standards required by the London
Stock Exchange.[36]
44. In February 1996, AEA Technology's plan to meet
these problems, including the secondment of two senior staff from
Coopers and Lybrand to improve the finance functions, was implemented
and the issues were resolved to a point where the Department felt
the flotation could proceed. One lesson to be drawn from AEA Technology's
experience is that it can be difficult and time consuming to recruit
finance staff with appropriate experience at a time when future
ownership of an organisation is uncertain. In AEA Technology's
case, this resulted in difficulties in producing robust financial
information on a timely basis at a key stage in the sale process.[37]
45. The Department told us that they were aware of
the existence of these problems but not of their seriousness until
a report was delivered to them in December 1995. They said they
had then taken rapid action to remedy the deficiencies and that
privatisation had been postponed by only six months as a result.[38]
46. Without rationalisation AEA Technology was unsaleable
and in December 1995 the Department justified additional funding
for the rationalisation by reference to the impact they expected
the rationalisation to have on the sale.[39]
47. We therefore asked why the Department did not
regard these rationalisation costs as costs of sale. The Department
told us that the costs should not be regarded as sale costs because
restructuring would have been necessary even if AEA Technology
had remained in the public sector.[40]
48. We asked whether the decision to sell the company
precipitated the restructuring. The Department said that the restructuring
would have taken place anyway and was part of a longer term programme
designed to improve competition for decommissioning services.
Competition was likely to reduce decommissioning costs substantially,
perhaps by as much as 25 per cent. In 1994, decommissioning costs
were expected to total £9 billion and in 1997 they were shown
to total £7.2 billion. Although this was not purely
attributable to the restructuring of AEA Technology, the Department
consider that the restructuring of AEA Technology played a significant
part.[41]
49. We asked whether the saving in decommissioning
costs would have occurred if AEA Technology had not been privatised.
The Department told us that savings would have been smaller under
Government ownership because competitors would not believe there
was real competition. If the Government was both placing the contract
and owning the company with whom the contract was placed, competitors
would consider that the competition was fixed.
Conclusions
50. We note the Department's view that the £121
million that it cost to restructure AEA Technology and separate
them from the United Kingdom Atomic Energy Authority before the
sale should not be treated as sale costs because restructuring
and separation would have been necessary even if AEA Technology
had been retained in the public sector.
51. We are not convinced by this argument: without
rationalisation the business was unsaleable and additional funding
for rationalisation was justified by the Department by reference
to the impact they expected rationalisation to have on the sale.
It is unacceptable for Department's to seek to inflate net sale
proceeds by ignoring expenditure related to the sale.
52. We note that one of the objectives of rationalisation
was to put in place a new financial management information system.
We are concerned that deficiencies in this system were not discovered
until a late stage and that this delayed the sale by six months.
We note that this was attributable to AEA Technology not having
the finance staff with the necessary expertise. In the future,
we look to vendor departments to ensure that finance staff with
the required expertise are in place in time to provide the financial
data required by the market for privatisation.
36 C&AG's Report paras 2.2-2.3, 2.11-2.12, Figure
5 Back
37
ibid paras 2.13-2.15 Back
38
Q10 Back
39
C&AG's Report paragraph 3 Back
40
Q127 Back
41
Qs 13-15, 62-65, 126-129 Back
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