A Killing in the Market

By whom? The Carlyle Group, of course.

QinetiQ, the [British]government's defence and security technology business, will come to the stock market next month with a value of up to £1.33bn, making multi-millionaires of its chairman and chief executive and huge profits for the US private equity group, Carlyle. Shares in the biggest privatisation under the Blair administration will be priced at between 165p and 205p, with the grey market - the City's guesstimate of the final strike price - standing between 190p and 203p.

If the shares were sold at 205p, the top of the price range, the 31% Carlyle stake - bought for £42.4m in 2003 - would be worth £338m. QinetiQ chairman Sir John Chisholm's holding would be valued at £26m and chief executive Graham Love's stake would be worth £22m. The company's biggest shareholder, the Ministry of Defence, which has been criticised for selling the stake to Carlyle too cheaply, would see its 56% holding worth £623m.

Under the terms of the initial public offering the company will raise £150m, while Carlyle and the MoD will sell about half their stakes. Taking into account the new shares being issued by QinetiQ, that will reduce their holdings to just under 13% and 23.7% respectively...

Yesterday the company said turnover for the six months to the end of September had risen more than 28% to £473.5m while operating profits rose almost 40% to £37.3m. QinetiQ makes products ranging from sensors and software for military purposes to advanced security systems protecting financial firms from fraud. Although the company is making efforts to broaden its operational base, its prospectus noted that it relied on the British government - in particular the MoD - for the majority of its turnover. Its largest single contract covers the running of the MoD's firing ranges...

QinetiQ began life as part of the Minstry of Defence's research laboratories. It can trace its history from the birth of powered flight in Britain, through the development of radar during the second world war, to thermal imaging, liquid crystal displays and internet technology during the cold war. In 1991 the government put its non-nuclear defence research operations, much of which subsequently became QinetiQ, into a separate company - DERA. In 2002 Carlyle was chosen as a strategic partner, purchasing its stake in the following year.

A defense company whose major investors are defense ministers who make money selling contracts to the Ministry of Defense.

Sounds like a natural for the Carlyle Group.