Not a scandal but a textbook success
Ross Butler says MPs’ criticisms of the sell-off of theformer Defence Research Agency are financially naive
In America it would have created celebrity entrepreneurs and provided a template for future deals. Instead, the British government’s hugely successful privatisation of the defence business QinetiQ has prompted a political witch-hunt.
The taxpayer made more than £800 million from the deal, far more than anyone dreamed at the start of the process. But a Committee of Public Accounts report on 10 June, following a National Audit Office inquiry, blasted the Ministry of Defence for selling too cheaply, and the company’s management for profiteering from the process of transferring what was originally the Defence Research Agency into the private sector. The Committee’s Conservative chairman, Edward Leigh MP, said the MoD had conducted a preliminary sale to a private equity firm in 2003 ‘like an innocent at a table of card sharps’.
Meanwhile, QinetiQ’s chairman, Sir John Chisholm — who joined the Defence Research Agency on its formation in 1991, and went on to gain £26 million from its sale — stands accused of helping hand the business to private equity on the cheap in return for his cut. ‘It was a one-way ticket to a run-away success,’ according to John Humphrys in a Today interview with Chisholm last week.
The private equity firm in question, the Washington-based Carlyle Group, is famous for political connections acquired by hiring the likes of George Bush Sr and Ronald Reagan’s secretary of defence, Frank Carlucci; the European arm of Carlyle was chaired by John Major from 2000 to 2005. On the face of it, as one Public Accounts Committee member put it, the whole thing ‘stinks to high heaven’.
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Cogito Ergosum
June 19th, 2008 4:39pmIf the Governement feels it got too little from the deal, that merely matches their disdain for the scientific skills which propelled the company.
If they really valued scientists and engineers, they would have kept ownership of the company.
Peter Sugar
June 20th, 2008 2:58amYou are forgetting the large single tender government contract handed down by government for the management of the ranges, just prior to flotation.
You are also forgetting the enormous amount of land that the government allowed QinetiQ to keep and which they sold for cash to fund the purchase of those companies in the USA.
The chairman and people who profiteered did not work for that but were handed all of that on a plate. How could the valuation of the business had been so low escapes everyone and it stinks to high heaven.
The numbers look unbelievable whatever you say about context. The business of this firm today is what it always was a handout from government (UK or US) and the patents and elite scientists they inherited meant that they could not fail. The firm is not as robust as you are describing it for otherwise the share value would be much higher than at flotation prices.