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By Julian Nettlefold, Editor BATTLESPACE

09 Feb 07. Carlyle Group announced A successful placement of 67,766,766 shares, its entire stake in QinetiQ with institutional investors at a price of 205 pence per share, representing their entire holding. This represents 10.3 of QinetiQ’s current shares outstanding. Credit Suisse, JP Morgan Cazenove and Merrill Lynch International acted as Joint Global Co-ordinators and Book runners in respect of the Placing.

At the same time QinetiQ announced the resignation of Glenn Youngkin as a non-executive director in connection with Carlyle’s announcement of its intention to sell down its shareholding in QinetiQ. Mr Youngkin’s resignation will take place with immediate effect. Mr Youngkin, managing director, The Carlyle Group said: “I have greatly enjoyed working with the outstanding team at QinetiQ and am very proud of the company and its excellent performance since 2003. The company is now very well positioned in the defence and security technology market, both in the UK and the US, and I am certain it will continue to excel for the benefit of its shareholders. It has been a privilege to have been a part of this success story.”

Graham Love, chief executive of QinetiQ said: “We thank Glenn Youngkin and the Carlyle team for their support, guidance and industry expertise over the past years. Their input has been instrumental in the evolution of our business, and we particularly value their contribution to growing our business in the US through acquisition, a strategy which we continue today.”

Rumours abound that the MoD will be the next shareholder to sell out. Most of the money was made by Carlyle and the Directors in the run up to floatation so to sell out at a 12p a share profit was just icing on the cake.

Is this a deck clearing exercise at QinetiQ and the start of the much rumoured rationalisation of this sprawling and disjointed organisation that, in some sectors, still has the mindset of a Government organisation. DSTL, the Government laboratories are in direct competition to QinetiQ in many areas and QinetiQ also faces competition from slimmer organisation such as Nick Prest’s Cohort Group which is making strong inroads into this market. The departure of the top layer of management at HVR was seen as the first step in this process with rumours of more job losses to come.

There are some dynamic segments of QinetiQ and some undoubtedly very clever scientists, but, with the overall R&D budget slowing and being spread amongst industry, clearly one more step id required to tidy up this business for a potential buyer. L-3 was tipped as a buyer last year, but given Frank Lanza’s death and the need to clean up the empire, perhaps SAIC would be seen as the most likely buyer given its own dynamic floatation? The trigger for Carlyle’s sale may have been the failure of the shares to respond to greater height after the announcement of the DTR win, so they have exited at a profit. Certainly, given the parlous state of their finances, the MoD would be wise to exit once the shares recover from today’s losses, and take profit.

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