U.K. Defense Specialist Qinetiq Tests Water for Sale of U.S. Arm

Qinetiq Group Plc, the former U.K. defense-research laboratory, said it’s evaluating the level of demand for a potential sale of its U.S. services unit.

The McLean, Virginia-based business, which provides services including ground support, lab operations and flight systems engineering at the Kennedy Space Center, is being subjected to market testing as part of a viability review.

“What we want to make sure is that we understand what the potential maximum value of that business is,” Leo Quinn, London-based Qinetiq’s chief executive officer, said in a telephone interview. “The strategic review is considering what is going on in the market. We have no preconceived outcomes.”

The U.S. government-services sector has been in a state of flux as spending is cut, with underlying operating profit at the Qinetiq unit down 30 percent to 9.4 million pounds ($15 million) in the fiscal first half, according to a statement today.

Shares of Qinetiq, which said net income in the six months to Sept. 30 was little changed at 62.1 million pounds, advanced as much as 9 percent and were trading 6.8 percent higher at 210 pence as of 9:58 a.m. in London. The stock has added 14 percent this year for a market value of 1.4 billion pounds.

The business review is due to be completed this fiscal year and may or may not lead to a transaction, Quinn said, adding that the U.S. unit’s profitable Cyveillance business, which alerts clients to cyber attacks, is not part of the appraisal.

U.K. defense-services company Babcock International Group Plc sold U.S. operations last year after a similar study.

U.S. markets are also becoming more competitive, impacting margins and delaying contract awards, Quinn said. The company is seeking growth from the Middle East, where he said there’s a good order flow despite booking delays, Canada and Australia.

Qinetiq, whose main activities include evaluation of military aircraft and development of unmanned drones, would retain a U.S. reach even if it sold the services division after splitting off defense and intelligence operations.

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