The business incompetence of the Ministry of Defence and the Labour Government is put in the spotlight by a National Audit Office report on the 2003 privatisation of the defence technology business QinetiQ.
Initially there were seven bids for QinetiQ valuing the business at between £450 million and £600 million. The private equity firm Carlyle purchased a 37.5% stake for £42 million. That valued QinetiQ at only £374 million. That was in 2003. The value of the stake rose to £372 million.
How did this happen? The NAO press release states: “Carlyle were appointed as the preferred bidder in September 2003 despite price sensitive issues still being outstanding. This turned a competitive process into one of negotiation.” To rephrase that, once the other would-be buyers were ruled out, there was only one person left in the saleroom – a situation any self-respecting business person would exploit, and Carlyle did. The situation was made even more favourable to Carlyle by Treasury pressure for the sale to go ahead. Carlyle bargained the price down following negotiations concerning QinetiQ’s pension fund deficit and the Long Term Partnering Agreement (LTPA). The NAO states, “the commercial value of the LTPA was not fully understood”. The mind boggles.
(By the way, why was a UK defence technology business sold to a US firm?)
The report also reveals that the MoD made up to 20 per cent of the equity available to management and employees in an incentive scheme, but did not seek specialist advice on the scheme. Apparently the top ten managers (former civil servants) negotiated the incentive scheme with Carlyle while it was still bidding for the business. Sounds like a conflict of interest to me, but with no one on the Government's side properly safeguarding the taxpayers' interests, the managers seem to have run rings around the MoD, as they acquired shares worth £107 million by the time of flotation in 2006, from their initial investment of a paltry £540,000. That is over £200 for every £1 they invested. Chairman Sir John Chisholm got shares worth £26 million and Chief Executive Graham Love shares worth £21 million.
This Government will eventually sink by the weight of its own incompetence.
Initially there were seven bids for QinetiQ valuing the business at between £450 million and £600 million. The private equity firm Carlyle purchased a 37.5% stake for £42 million. That valued QinetiQ at only £374 million. That was in 2003. The value of the stake rose to £372 million.
How did this happen? The NAO press release states: “Carlyle were appointed as the preferred bidder in September 2003 despite price sensitive issues still being outstanding. This turned a competitive process into one of negotiation.” To rephrase that, once the other would-be buyers were ruled out, there was only one person left in the saleroom – a situation any self-respecting business person would exploit, and Carlyle did. The situation was made even more favourable to Carlyle by Treasury pressure for the sale to go ahead. Carlyle bargained the price down following negotiations concerning QinetiQ’s pension fund deficit and the Long Term Partnering Agreement (LTPA). The NAO states, “the commercial value of the LTPA was not fully understood”. The mind boggles.
(By the way, why was a UK defence technology business sold to a US firm?)
The report also reveals that the MoD made up to 20 per cent of the equity available to management and employees in an incentive scheme, but did not seek specialist advice on the scheme. Apparently the top ten managers (former civil servants) negotiated the incentive scheme with Carlyle while it was still bidding for the business. Sounds like a conflict of interest to me, but with no one on the Government's side properly safeguarding the taxpayers' interests, the managers seem to have run rings around the MoD, as they acquired shares worth £107 million by the time of flotation in 2006, from their initial investment of a paltry £540,000. That is over £200 for every £1 they invested. Chairman Sir John Chisholm got shares worth £26 million and Chief Executive Graham Love shares worth £21 million.
This Government will eventually sink by the weight of its own incompetence.
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