Chubb is forecast to trade at below 200p

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The Independent Online
Dealers expect shares in Chubb Security, which start trading next week ahead of the planned demerger from Racal Electronics next month, to open at less than 200p, valuing the company at less than pounds 550m.

Shares in Racal, shorn of Chubb, are expected to trade at about 150p, putting a value on the company of pounds 440m. The combined valuation of up to pounds 990m compares with Racal's value yesterday of pounds 890m.

The demerger is subject to approval by shareholders at a meeting on 2 October and will take effect three days later. Trading without share certificates will start on Monday next week.

Sir Ernest Harrison, chairman of Racal and of Chubb, said the demerger, which has been planned for two years, would give Chubb a higher profile. He hoped it would boost the value of the two companies, taken together. Last year the company demerged Vodafone, formerly Racal Telecom, the cellular radio concern.

Chubb forecast operating profits of not less than pounds 28m in the six months to 9 October, despite a pounds 2.6m blow from the weaker dollar. There will be exceptional redundancy costs of about pounds 5m in the first half and interest charges of about pounds 2m.

Racal's borrowings of about pounds 105m will be split equally with Chubb, giving it pounds 50m of debt. Cash flow is expected to reduce that further before the year-end.

Sir Ernest predicted a further boost to profits from cost-cutting measures taken since last year.

Chubb will pay pounds 2.5m a year to Racal for Sir Ernest's time and for administrative services. The demerger is costing pounds 3.5m, which will be paid for by Racal and charged as an extraordinary item.

The Vodafone demerger, which took effect a year ago yesterday, cost pounds 7.7m. It was followed a day later by a pounds 760m bid from Williams Holdings, which failed.

Asked whether he expected a bid for either Racal or Chubb following the latest demerger, Sir Ernest said: 'The company has a higher value than it did a year ago. If the price is right we will consider a bid.'

Tomkins, the conglomerate that owns Smith & Wesson, the handguns manufacturer, offered to buy Chubb last year for pounds 450m free of debt. Sir Ernest said this was not high enough.

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