London - The Ministry of Defence has agreed the terms under which The Carlyle Group will become its strategic partner to assist in the future development of QinetiQ, Defence Minister Lewis Moonie announced today.

Dr Moonie said: "The strategic partnership with The Carlyle Group keeps QinetiQ on course to become a leading science and technology company that aspires to be the envy of the world. The Carlyle Group shares our vision for the future of QinetiQ and is well placed to support the management team in building a company, which we expect to flourish commercially, based on its commitment to excellence."

"QinetiQ will remain a British company based in the UK. MOD will retain a Special Share in the business 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".

"This is good news for taxpayers, who will benefit from the immediate sale proceeds as well as from QinetiQ's potential increase in value over time. And it is good news for QinetiQ's employees who 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. Today's announcement marks a new future for science and technology in Britain."

The sale follows MOD's decision in March this year to seek a strategic partner to invest in QinetiQ, and the selection of The Carlyle Group as preferred bidder in September. The transaction values QinetiQ at around £500m. Following adjustments to reflect current assets and liabilities, MOD will receive between £140 and £150m from the transaction (the final amount will depend on the company's exact financial position at completion), in addition to £50m already received from QinetiQ as part of the purchase price for its assets. Subject to the satisfactory fulfilment of a number of final conditions, formal completion of the sale process is expected early in the New Year,

Carlyle will acquire a 33.8% economic interest in QinetiQ with a further 3.7% of the shares to be made available for the employees. MOD's retention of a 62.5% current stake in the business will ensure that the taxpayer shares in the benefits of the growth in QinetiQ, which we anticipate will follow the introduction of a strategic partner. The MOD plans to sell its entire stake in QinetiQ within 3-5 years, probably through a flotation on the stock market.

Management control and responsibility for setting future commercial strategy will now lie with QinetiQ and The Carlyle Group, allowing them to make appropriate decisions to grow the value of the business. MOD will retain those rights which are conventional for a major shareholder.

QinetiQ's Board of Directors, chaired by Dame Pauline Neville-Jones, will be augmented by the appointment of two Carlyle nominees - Glenn Youngkin, a Managing Director of The Carlyle Group, and Sir Denys Henderson. MOD also has the right to appoint two non-executive directors.

Sir John Chisholm, QinetiQ's Chief Executive commented: "Working together, QinetiQ and The Carlyle Group will be a strong team with complementary experience. We can now be even more confident of achieving our ultimate goal of moving from a European leader to a global technological solutions provider for our diverse range of customers. Carlyle's investment secures a bright, long-term future for our business, our employees and our customers."

Glenn Youngkin, The Carlyle Group's Managing Director in London, commented: "We are impressed with the quality of the business and are looking forward to supporting such a capable and ambitious management team. We can see enormous opportunities to grow the value of the business, harnessing innovation to create profitable commercial applications."