January 13: Questions to ask about Qinetiq

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January 13: Much of the discussion today in our newsroom as been about where to go next with the Qinetiq story. The debate, nicely stoked on our front page by Lord Moonie this morning, continues to centre on whether the government sold Carlyle its 34 per cent stake too cheaply in 2002. He sounded absurd when he told us the management should only benefit from “proper growth” (whatever that is) at Qinetiq and that instead they were gaining from the stock market recovery and acquisitions.

He forgets that, apart from the way Carlyle has changed the business in the intervening three years, it took on the risk of what would happen to markets and which companies to acquire – never a one-way bet. As for the row over the government’s decision to exclude private investors from the IPO, that’s a complete red herring. The taxpayer, which still has 56 per cent of Qinetiq, is best served by an efficient IPO, not one burdened by the massive cost of an open offer to the public.

It is, however, clear that the government valued Qinetiq too low. One interesting question is whether the company’s management did all it could at the time to point out its latent potential to the Treasury. There is a (very reasonable) general suspicion harboured by many City investors that a conflict exists between the interests of a management team which is joining forces with a private equity bidder and those of the shareholders for whom they work. I have no idea yet whether this was the case at Qinetiq, but the temptation for managers to underplay the true value of their company when they are being promised a stake in the private equity-backed bid vehicle must be great.

Otherwise, today’s news is quite bitty. Panmure Gordon is amongst the most interesting stories. It has formed a joint venture with Bank of Scotland to invest in small businesses at a pre-IPO stage – a smart move which we will see more of from other small brokers this year. It has also brought Charles Stonehill on board as non-executive deputy chairman. He is a big name, having been very senior at both CSFB and Lazard. The broker also produced a strong trading update.

We also have a surprise profits warning from Northern Foods – surprising because M&S, one of the company’s main customers, had been doing well. Northern has had to cut prices on Foxes biscuits, or something. Another M&A supplier, Uniq, reported better trading yesterday. Tell you more tomorrow.

Sir Bob Phillis, chief executive of Guardian Media Group, will retire at the end of July for health reasons. I doubt this has anything to do with it, but he raised some eyebrows at the end of last year when he said in an interview with the FT that he didn’t understand the Guardian’s internet strategy.

We’ll probably do more tonight on the new chief executive at Somerfield, former Asda and Levi Strauss executive Paul Mason. His appointment, which we wrote about this morning, has been confirmed by the private equity-owned company (Apax, Robert Tchenguiz and Barclays Capital). This seems to have come as a surprise to Steve Back, the current chief executive. Public company directors who think life is cushy in private equity - take note.

We’ll also do more on the future for Aviva, and on this week’s fascinating story about Sherwood, the lingerie group, and its pensions problem. Maggie Urry has written a great feature on the rise in the number of companies going bust in one form or another after the problems at Golden Wonder and Unwins etc.

On the BA pensions/pilots strike story, the debate has now got going online the Professional Pilots Rumour Network. Dip in – it’s interesting stuff.

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