On 1 July 2001 the Defence Evaluation and Research Agency was successfully divided into QinetiQ plc, a wholly Government-owned company, and the Defence Science and Technology Laboratory, which remains part of the Ministry of Defence.

On 6 March 2002, Hansard, column 313–314W I informed the House that we had decided to sell a substantial stake in QinetiQ to a strategic partner who would help to develop the company in preparation for a future flotation on the stock market. Our decision followed a detailed analysis of market conditions, which led us to conclude that this approach offered best value for the taxpayer, and would meet our objectives for a successful public private partnership.

Following the announcement in early September that The Carlyle Group had been chosen as preferred bidder in MOD's selection of a strategic partner, the MOD has now signed a deal with Carlyle. The transaction values QinetiQ at around £500 million. Following adjustments to reflect current assets and liabilities, MOD will receive between £140 million and £150 million from the transaction (the final amount will depend on the company's exact financial position at completion). This will be in addition to £50 million already received from QinetiQ as part of the purchase price for its assets.

The Carlyle Group will acquire a 33.8 per cent. economic interest in QinetiQ with a further 3.7 per cent. of the shares to be available for employees of QinetiQ. Management control and responsibility for setting future commercial strategy will now lie with QinetiQ and Carlyle, allowing them the freedom to make appropriate decisions to grow the business. MOD will retain those rights that are conventional for a major shareholder. QinetiQ's board of directors will be augmented by the appointment of two Carlyle nominees. MOD will also have the right to appoint two non-executive directors. QinetiQ employees will have the opportunity to invest in the future of the business through a staff equity scheme and will each receive a small free allocation of share options.

This is a good deal for the taxpayer, for QinetiQ and for the company's employees. At completion, the taxpayer will have received a total so far of around £200 million from the PPP and MOD's retention of a significant stake in the business will ensure that the taxpayer shares in the anticipated future growth in the value of the company. The company will benefit from the injection of new private sector capital together with The Carlyle Group's track record in assisting companies to grow and develop. As previously announced, our intention remains to sell our entire stake in QinetiQ within three to five years, probably through a flotation on the stock market.

QinetiQ will remain a British company based in the UK. MOD will retain a special share in the company to ensure that the nation's defence and security interests continue to be protected. There will also be robust safeguards to prevent conflicts of interest and to ensure that the integrity of the Government's procurement process is not compromised.

Subject to the satisfactory fulfilment of a number of final conditions, we expect to achieve the formal completion of the sale process early in the new year.