The sale at a knockdown price of one of the country’s most prized national assets - which led a few individuals to cash in with a near 20,000 per cent return on their shares - left the taxpayer “short-changed”, it was claimed yesterday.

A long investigation by the National Audit Office (NAO) into the sale of QinetiQ, formerly the Ministry of Defence’s Defence Evaluation and Research Agency, concluded that the price eventually agreed was lower than it should have been.

The NAO said that the top ten managers of QinetiQ, who had invested £537,000 in the company’s shares, saw their value rise to £107 million - an increase of 19,900 per cent - after just three years when the company was floated on the London Stock Exchange.

Sir John Chisholm, chairman of the defence research company, invested £130,000 in QinetiQ and received a return of £26 million, and Graham Love, the chief executive, saw his investment of £110,000 rise to £21.3 million on flotation.

In its report, published yesterday, the NAO said that the investment returns for these managers “exceeded” what was necessary to encourage them to develop the company’s potential. Edward Leigh, chairman of the Commons Public Accounts Committee, seized on the NAO report to denounce the sale of QinetiQ.

“The NAO analysis is clear: the taxpayer was short-changed,” he said. He added that the rewards for QinetiQ’s top managers meant they had “won the jackpot”. “They got a mind-boggling return of almost 20,000 per cent on their investment.”

The Defence Evaluation and Research Agency (DERA), which carried out secret work on new equipment for the Armed Forces, had been split up in 2001. The most secret research was kept within the MoD but about three quarters of its other programmes, especially those with potential commercial spin-offs, were transferred to QinetiQ.

Two years later, the Government sold a 37.5 per cent stake in QinetiQ to The Carlyle Group, one of America’s largest private equity firms, for £42 million. The MoD retained 56 per cent of the shares. At that stage, QinetiQ’s assets were valued at £342 million.

However, when it was floated on the London Stock Exchange in February last year, the company was valued at £1.3 billion – an 800 per cent increase. Carlyle later sold its stock for £370 million.

The sale of QinetiQ, which was approved by Gordon Brown when he was Chancellor, was described yesterday by Lord Gilbert, who was twice a Labour Defence Procurement Minister, as a “scandal”.

He told The Times that the profit made by a few individuals was “obscene”, and he described as “wanton and frivolous” the Government’s decision to sell such a key national asset to a private company that had made a fortune out of the skills and expertise of some of the country’s most dedicated scientists and engineers.

The MoD has always insisted that the QinetiQ deal was good value for taxpayers. It has retained a 19 per cent shareholding in the company, worth about £250 million at today’s prices, and a seat on the board. The MoD said the taxpayer had benefited by nearly £600 million from the privatisa-tion of QinetiQ. Most of the profits, it said, had been ploughed back into defence programmes.

However, the NAO said the MoD should have made “tens of millions more” for the taxpayer and criticised the ministry for being too hasty in appointing Carlyle as a preferred bidder. NAO officials acknowledged that Carlyle had strong political connections in the UK.

Patricia Leahy, director of the NAO study, also said she had been “puzzled” as to why the MoD had agreed to sell an extra 2.5 per cent of QinetiQ to Carlyle at the last moment before the deal was signed. The original proposal had been for the private equity firm to get 35 per cent of the company.

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