The Ministry of Defence behaved like “an innocent at a table of card-sharps” when it sold Worcestershire defence research firm QinetiQ, according to the chairman of a Commons spending watchdog.
Taxpayers lost more than £90 million because the firm was sold at the wrong price, said Edward Leigh, chairman of the Committee of Public Accounts.
He was speaking as the committee today publishes a scathing report into the sale of the business, which has major facilities in Malvern, Worcestershire, and Farnborough, Hampshire.
A Commons inquiry concluded senior managers were guilty of “profiteering at the expense of the taxpayer” after they were allowed to negotiate their own incentive packages with the private equity firm which bought a share in the company.
The top 10 managers in QinetiQ made more than £100 million out of the deal, which amounted to a “serious conflict of interest”, the MPs found.
QinetiQ was privatised in two stages, with the sale of a minority stake to private equity firm the Carlyle Group in 2003 followed by flotation on the London Stock Exchange in 2006.
The flotation was managed well but the initial deal was handled badly, MPs warned.
A minority stake was sold when the market for technology stock was weak, and the Carlyle Group was offered an “unbeatable hand” when other bidders were eliminated by the MoD, said the report.
The MoD also began the sale process before QinetiQ’s most important contract had been finalised, making it difficult to judge the company’s true value, noted the report.
This “weakened the competitive process” and allowed Carlyle to negotiate a £55 million reduction in the value of the business after they had been appointed preferred bidder, the MPs said.
But the committee expressed particular concern over the fact QinetiQ managers were able to negotiate their own deal which allowed them to profit significantly.
The Commons report says: “QinetiQ senior management received £200 for each £1 invested whilst the taxpayer received £9. QinetiQ management negotiated their incentives before Carlyle were appointed preferred bidder, without making the department aware of this serious conflict of interest.
“Such profiteering at the expense of the taxpayer is not something this Committee would expect from former public servants.”
According to the report, the Department relied on Carlyle to design the incentive scheme and did not put safeguards in place to protect its own interests.