Pennant-Rea consortium received pounds 4m sweetener to buy bargain-pric ed HMSO

A consortium led by the former deputy Governor of the Bank of England, Rupert Pennant-Rea, received a pounds 4m sweetener to purchase the Stationery Office even though the final sale price was half the Government's target valuation, it emerged yesterday.

National Publishing Group, the company formed by Mr Pennant-Rea and the venture capitalists Electra Fleming, paid pounds 54m for the Stationery Office in September, 1996.

But a highly critical report on the sale published yesterday by the National Audit Office, the Government's financial watchdog, disclosed that National Publishing Group's initial indicative bid was pounds 170m while the Government's advisers, Coopers & Lybrand, put a "benchmark valuation" of pounds 110m on the business.

The report revealed how the winning consortium whittled down its offer price over a four-month period as the deteriorating state of the Stationery Office's finances and business prospects became apparent.

It also disclosed that in the final few days before the business was sold, the Stationery Office was nearly bankrupted, suspending payments to suppliers because it was in danger of breaching its pounds 50m statutory borrowing limit.

The Cabinet Office under the Chancellor of the Duchy of Lancaster, Roger Freeman, therefore agreed to pay National Publishing the cash balances in the business at the point of sale which amounted to pounds 3.8m.

The Cabinet Office justified the payment on the grounds that: "Failure to compensate the purchaser in this way might well have led to a breakdown in the deal negotiations."

National Publishing subsequently told the NAO that the additional amounts owed to creditors exceeded the cash sweetener by pounds 2m. Since the takeover, it has also axed 1,000 jobs from the workforce of 2,500 at a cost of pounds 54m.

The Pennant-Rea consortium was one of 14 groups that submitted initial indicative bids in May, 1996. Its offer, at a price range of pounds 150m to pounds 170m was pounds 9m more than the next highest bid from Hambros.

By the time it submitted its final bid in July, the price had been cut to pounds 86m. In August it cut the offer price to pounds 69m, citing risks associated with taking on the businesses and other additional costs. In September it reduced its offer for a final time to pounds 54m because of delays in finalising completion accounts.

The NAO report is severely critical of the way the Stationery Office was run in the build-up to the sale, accusing it of "poor financial and management control", producing over-optimistic turnover and profit forecasts and having a badly-executed restructuring programme.

Although the original plan had been to float the business in 1997, the NAO said that the decision to bring forward the sale had no impact. "We found no evidence to suggest that a delay in the sale to improve the profitability of the business would have produced better value for money."

The costs of the sale to the taxpayer were pounds 2.2m - equal to 4 per cent of the proceeds.

Last night, Mr Pennant-Rea said the NAO report confirmed that the taxpayer had received value for money. "Given the failure of state ownership to restructure the business, the disciplines of the private sector were essential to secure the long-term health of the business."