APPENDIX 1
Letter from Parliamentary Under Secretary,
MoD to the Chairman (5 December 2002)
In early September, I announced that The Carlyle
Group had been chosen as preferred bidder in MoD's selections
of a strategic partner to invest in QinetiQ. I also wrote in similar
terms to parliamentary colleagues with QinetiQ sites in their
constituencies and to those who had previously expressed an interest
in the DERA PPP process.
I am now pleased to be able to tell that I have
today informed the House that we have signed a deal with The Carlyle
Group who will acquire a 33.8% economic interest in QinetiQ with
3.7% of the shares available for the employees. I am attaching
a copy of the announcement to Parliament, which was made today.
Subject to the satisfactory fulfilment of a number of final conditions,
we expect to achieve the formal completion of the sale process
early in the New Year.
This deal is good news for the taxpayer, for
the company and for QinetiQ's employees. At completion, the taxpayer
will have received a total so far of around £200 million
from the PPP, and MoD's retention of a significant stake in the
business will ensure that the taxpayer shares in the anticipated
future growth in the value of the company. The company will benefit
from the injection of new development capital together with The
Carlyle Group's proven track record in assisting companies to
grow and develop.
QinetiQ employees will also be given the opportunity
to invest in the future success of the business through a staff
equity scheme and will each receive a small free allocation of
share options.
Annex
On 1 July 2001 the Defence Evaluation and Research
Agency was successfully divided into QinetiQ plc, a wholly government-owned
company, and the Defence Science and Technology Laboratory, which
remains part of the Ministry of Defence.
On 6 March 2002, I informed the House that we
had decided to sell a substantial stake in QinetiQ to a strategic
partner who would help to develop the company in preparation for
a future flotation on the stock market. Our decision followed
a detailed analysis of market conditions, which led us to conclude
that this approach offered best value for the taxpayer, and would
meet our objectives for a successful public private partnership.
Following the announcement in early September
that The Carlyle Group had been chosen as preferred bidder in
MoD's selection of a strategic partner, the MoD has now signed
a deal with Carlyle. The transaction values QinetiQ as around
£500 million. Following adjustments to reflect current assets
and liabilities, MoD will receive between £140 million and
£150 million from the transaction (the final amount will
depend on the company's exact financial position at completion).
This will be in addition to £50 million already received
from QinetiQ as part of the purchase price for its assets.
The Carlyle Group will acquire a 33.8% economic
interest in QinetiQ and 3.7% of the shares will be available for
the employees. Management control and responsibility for setting
future commercial strategy will now lie with QinetiQ and Carlyle,
allowing them the freedom to make appropriate decisions to grow
the business. MoD will retain those rights that are conventional
for a major shareholder. QinetiQ's Board of Directors will be
augmented by the appointment of two Carlyle nominees. MoD will
also have the right to appoint two non-executive directors. QinetiQ
employees will have the opportunity to invest in the future of
the business through a staff equity scheme and will each receive
a small free allocation of share options.
This is a good deal for the taxpayer, for QinetiQ
and for the company's employees. At completion, the taxpayer will
have received a total so far of around £200 million from
the PPP and MoD's retention of a significant stake in the business
will ensure that the taxpayer shares in the anticipated future
growth in the value of the company. The company will benefit from
the injection of new private sector capital together with The
Carlyle Group's track record in assisting companies to grow and
develop.
As previously announced, our intention remains
to sell our entire stake in QinetiQ within 3-5 years, probably
through a flotation on the stock market.
QinetiQ will remain a British company based
in the UK. MoD will retain a special share in the company to ensure
that the nation's defence and security interests continue to be
protected. There will also be robust safeguards to prevent conflicts
of interest and to ensure that the integrity of the Government's
procurement process is not compromised.
Subject to the satisfactory fulfilment of a
number of final conditions, we expect to achieve the formal completion
of the sale process in the New Year.
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