UK to float defence firm Qinetiq

The UK government has announced that it is to sell its majority stake in defence firm Qinetiq and float the business on the stock exchange.

The UK Defence Secretary, Dr John Reid, said an initial public offering for Qinetiq shares would take place in February.

Controversy over the sale of Qinetiq focusses on the value of the business and the revenue for the current shareholders. The flotation is expected to raise £1.1bn, but the government said it would retain a major stake in the firm. Currently, the Ministry of Defence holds a 56% share in the business, with 13% owned by managers and staff of the business. The other 31% is owned by the US private equity firm The Carlyle Group, whose European Chairman is former Prime Minister John Major, making the sale worth around £340 million to The Carlyle Group. The government said The Carlyle Group would also 'continue to retain a significant stake in the company.'

Controversy has surrounded Carlyle's involvement, partly because it holds its stake through special-purpose vehicles in Guernsey, which is outside the jurisdiction of the British tax authorities.

Controversy also arises as floatation would result in the interests of shareholders determining business decisions for the defence research and technology company.

About 2,000 Qinetiq staff own 13% of the business, with the lion's share belonging to top management. Sir John Chisholm, the executive chairman, stands to make an estimated £24m from an initial stake of £129,000. Sir John was appointed chief executive of the Defence Evaluation and Research Agency, Qinetiq's forerunner, in 1991.

Qinetiq was born out of a desire in the 1950s to use science to fight the cold war. Its name, a recent innovation, is understood to refer to the gizmo-wielding Q in the James Bond spy movies. Although it is mainly devoted to defence, its innovations have extended to other sectors and it can claim credit for liquid crystal displays, foetal heart monitors and iceberg-warning devices. It has benefited from an upturn in defence spending after 9/11 and has transformed itself in the past few years with acquisitions in the US.