Depressed technology market may delay flotation by up to four years

The UK Ministry of Defence is blaming a lack of investor confidence in technology for its decision to delay the planned privatisation of defence research company Qinetiq.

The flotation was originally planned for this month, with the MoD expecting to raise up to £250 million ($355 million) by selling 51% of the company. Announcing the decision to delay the privatisation last week, defence minister Lewis Moonie said that "although privatisation had always been [the] preferred route", the depressed technology market means a sell-off would undervalue Qinetiq. Instead, part of the company will be sold to a "strategic investor" by year-end.

Moonie's advisor on the deal, Terence Jagger, says that, ideally, Qinetiq would "proceed from the partnership to a flotation, potentially in two to four years time". Moonie emphasises that recent high-profile failures of the UK rail network, sold off as Railtrack, has not scared investors away from public-private partnerships.

The new investor would take an unspecified share of Qinetiq - possibly a majority holding - although the MoD would retain a "golden share", ensuring that the company's security would not be compromised. Moonie does not rule out foreign investors, although he stresses that they would be subject to security checks. Scrapping the sale completely, he says, would damage confidence within Qinetiq, as well as denying it access to new funding from private investors.

The MoD does not say what sort of investors would qualify, but Jagger says that, given Qinetiq's role as advisor to the MoD, defence manufacturers would be barred.

Qinetiq was formed from 75% of the Defence Evaluation and Research Agency (DERA), the MoD's research arm, last July. The remainder of DERA, including chemical and biological warfare research, remains with the MoD as the Defence Science and Technical Laboratory. DERA/Qinetiq has an annual turnover of £800 million (£1.1 billion) and holds more than 4,000 active patents.

Source: Flight International