Comment: Sir Ernie's huge task to develop value

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The Independent Online
From one old pro, to an even older one. Sir Ernest Harrison is famous for pulling rabbits out his accountant's hat, but at 71 his final challenge - to revive Racal's flagging share price - may well prove beyond him. No amount of banging the shareholder value drum yesterday, which has long been Sir Ernie's favourite instrument, could conceal the scale of the task.

Let's be blunt here. All the best bits of Racal have already gone. His biggest coup, for which shareholders will be eternally grateful, was to hive off Vodafone. Five years later the mobile phone business is worth pounds 8.4bn, almost 13 times the value of its former parent. Then came Chubb Security, bought earlier this year by Williams Holdings for pounds 1.3bn. Six years ago Williams bid less than pounds 800m for the whole of Racal.

What is left may not be the ragbag of assets some commentators claim, but it nevertheless remains a collection of medium-sized fish in a very deep corporate pond. Sir Ernest freely admits that. All the main subisidiaries - defence, telecommunications and data products - would surely sit better in the lap of giants like GEC, British Aerospace or AT&T. Racal's already stretched balance sheet cannot provide the kind of investment needed to catapult growth into the fast lane.

Which leaves Sir Ernest with a bit of a dilemma. To produce another Vodafone would take time, money, and more luck than anyone deserves in a lifetime. Unfortunately, he's running out of all three. The next best alternative for investors would probably be a series of substantial asset sales. Yet here again Sir Ernest has lost the element of surprise, precisely the weapon which stood him in such good stead in the early 1990s.

He may not be sticking an "everything must go" poster in the shop window, but the effect is much the same. All the likely buyers know he's a seller in the right circumstances and they'll be pricing accordingly. Even so, a Racal break-up, with the money returned to shareholders, may be Sir Ernest's best way of realising the value he's so keen to develop.

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