BAe considers cashing in pounds 600m Orange stake

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The Independent Online

Deputy City Editor

The prospect of a stock market flotation of Orange, the mobile phone company, gained currency yesterday after British Aerospace, which owns almost a third of its shares, said it was investigating options for realising the value of the stake.

Orange, one of four mobile phone operators, could be worth up to pounds 2bn, putting a value of pounds 600m on BAe's holding. BAe said yesterday that Orange's parent, Hutchison Telecom UK, was planning to convert pounds 1bn of shareholder loans into non-recourse bank finance, but it admitted that "other options are opening up".

News of the possible Orange flotation came as BAe announced a big jump in underlying interim pre-tax profits from pounds 75m to pounds 160m as profits from the core defence business and the Airbus stake moved ahead and losses from regional aircraft were reduced.

Dick Evans, chief executive, said: "Whilst improvements are evident in some of our markets, most of the recovery we are now seeing is the result of actions to eliminate underperforming activities and reduce costs."

The market greeted BAe's figures well, pushing the shares 27p higher to 677p, close to their all-time high of 729p reached in 1989 and well above the 113p the shares touched at the end of 1992.

Mr Evans admitted that the failure to acquire submarine maker VSEL had been a disappointment but said there was still plenty of scope to expand the existing naval equipment businesses through the BAe/ Sema joint venture and other possible acquisitions.

Reported profits showed a sharp fall from pounds 411m to pounds 118m but last year's figure included a pounds 336m exceptional profit from the disposal to BMW of the Rover car manufacturing business. Profits for the first half-year were reduced by a pounds 21m loss on the sale of BAe's 50 per cent share in Burwood House, a property joint venture with Asda, and the pounds 6m costs of the abortive bid for VSEL.

Now focused on two core businesses after years of unsuccessful diversifications, BAe saw profits from its main defence business increase from pounds 221m to pounds 240m, while commercial aerospace's loss was reduced to pounds 59m from pounds 79m thanks to a good performance from Airbus.

BAe has invested pounds 250m in Orange, a joint venture with Hong Kong's Hutchison Whampoa, which owns the remaining 68 per cent of the company.

Hutchison is understood to need a further pounds 750m to expand Orange's digital network to the whole of the UK.

Orange, launched in April 1994, has won about 200,000 subscribers to the network and it is expected to move into profit by 1997.

Investment Column, page 28