Q91 Mr Davidson: Thank you. Excellent. I do not think I have ever been so glad to hear that in my life. While I am quite happy with the strategy that has been adopted here, the two-tiers and so on, like some of my colleagues I have some grave difficulties with the implementation thereof. I have the overwhelming feeling that Carlyle and the others just saw the MoD coming and they have taken advantage of your innocence in these matters and exacted a much better deal than we would have agreed to now when we have much more experience. Can I just ask Mr Schofield if that seems fair, that Carlyle, well experienced in taking sweets off children, found the MoD an inexperienced seller and took full advantage of them in a way that they would not let them do now?
Mr Schofield: I think that is an unfair criticism of the MoD. They were absolutely masterful in only selling a minority stake.
Q92 Mr Davidson: The strategy I accept.
Mr Schofield: In terms of the process, they ran a competitive process against a very difficult backdrop and that is a point that comes out throughout this Report, that the markets were difficult, the business was not as well developed by 2006, its strategy needed developing and at the same time the stock market comparators were falling. I think this was a very difficult backdrop against which to take forward an ambitious privatisation process and the fact that they only sold a minority stake was a masterful element.
Q93 Mr Davidson: I accept that. So we should be happy with this, should we?
Mr Schofield: I think we should be happy with the overall result. We should be happy with the way that the company was prepared for flotation and we should be happy with the way in which the flotation delivered value for the taxpayer.
Q94 Mr Davidson: You do not think that we could have got a better deal?
Mr Schofield: That is impossible for me to know. The Shareholder Executive first got involved in about 2004, a year after the deal with Carlyle, so I have just been looking back on the papers the way everyone else has. As I say, I was struck in reading the NAO Report as to the difficulty of carrying out a process throughout 2002.
Q95 Mr Davidson: I appreciate the difficulty and I am also supportive of the general structure that was adopted, but when something like that is difficult I was taking the view that was where the experience of Carlyle and the innocence of the MoD were at their most meaningful and it was in the detail where Carlyle then took advantage of these poor unfortunates who perhaps should not have been let out on their own. That is my reservation about that. Can I ask about Carlyle. Does the MoD have a lot of other dealings with Carlyle?
Mr Jeffrey: I do not think we have had other substantial dealings with Carlyle.4
Q96 Mr Davidson: Not knowing, perhaps you may give us a note. I am interested in the connections that Carlyle have. Can I just clarify whether or not Carlyle had at that time, or have had subsequently, employed people who had been in defence, military or political worlds in the UK and the same applying to their public relations advisers? Can you tell us that or, if not, give us a note on that?5
Mr Jeffrey: I am not aware that they did so but as ever, Mr Davidson, I ought to check and give you a note on the subject.
Mr Woolley: They have a military adviser who they have employed for some years who is an ex-serviceman.
Q97 Mr Davidson: I think it would be helpful if we just see who they have at the moment who was perhaps active at that time, and similarly for the public relations advisers, and who they had at that time who would have been involved actively in either the military, political or defence worlds. You do not know of anybody at all. The name John Major does not spring to your mind, for example?
Mr Jeffrey: Not to my mind, but perhaps I could reflect on that.
Q98 Mr Davidson: Google was able to give me that within two minutes when I was coming down here. Maybe you could check about the others. Mr Schofield, is this normal? One of the things that causes me anxiety is the way in which as soon as Carlyle were given preferred bidder status they managed to negotiate a reduction in the value of some £55 million. That does look as if they took advantage of the position that by then they had been given. Is that normal in these circumstances?
Mr Schofield: Every situation is different and every company is different, every transaction is different. That is an obvious point, I guess. In terms of this case, clearly it would be ideal if you could preserve in aspic a business from the point of going to preferred bidder to the point where you actually get the money in.
Q99 Mr Davidson: £55 million is not loose change though, is it? To be able to get preferred bidder status and then once you have got that foot in the door then to discover that there needs to be more work done on the roof and therefore the price will have to change and so on is standard negotiating practice, is it not, and Carlyle seems to have got away with it?
Mr Schofield: One of the points that comes out of paragraph 2.25 of the Report is the fact that the MoD held Permira as a reserve bidder throughout this process. The other point to make is that around this process, as I understand it, the MoD was receiving its continuing advice from UBS and the assessment was that those two elements that made up the £55 million to which you refer were justified in terms of the pension fund deficit and the changes to the Long Term Partnering Agreement.
Q100 Mr Davidson: So the pension deficit was not known about beforehand?
Mr Schofield: As I understand it, this was something that came out of the-
Mr Woolley: The bid from Carlyle was always subject to a settlement of the pension fund deficit.
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4 Ev 29
5 Ev 29