Former Mercury chief bids for Racal Telecom

Duncan Lewis, the former head of the Mercury phones company and senior Granada executive, is planning a return to the industry by launching bid to buy Racal's telecommunications business.

Chris Godsmark, business correspondent, reports on the future of one of the UK's largest telecoms networks.

Racal in effect raised a for-sale sign over its telecommunications business this summer when it appointed Merrill Lynch, the US investment bank, to hunt for potential partners or buyers. At the same time Goldman Sachs was called in to carry out a similar review of Racal's data products division.

The deadline for bidders to enter the ring expired on Friday and Mr Lewis is understood to have put in a proposal, backed by Schroder Ventures, the venture capital arm of the merchant banking group.

Mr Lewis, who resigned as chief executive of Granada's media business last year, was not available for comment yesterday. However, his plan is understood to be a management buy-in, where he would join with other former colleagues to buy Racal Telecom outright.

If the Lewis bid is successful it would be a high profile comeback for the executive, who left Granada after a simmering row with Charles Allen, the group's chief executive and Gerry Robinson, chairman. Since his departure Mr Lewis has been working on business projects and, apparently, enjoying a career break.

There had been speculation that he would return to Cable & Wireless to run its combined telephones and cable TV empire, C&W Communications. Instead Dick Brown, C&W's chief executive, chose another Granada executive, Graham Wallace for the top job. .

Before joining Granada Mr Lewis, a former BT manager, moved to Cable & Wireless where he rose to become chief executive of Mercury, now part of C&W Communications. During his nine month reign at Mercury he slashed costs there, cutting some 2,000 jobs.

The Lewis bid is thought to offer several hundred million pounds for Racal Telecom, which had sales of pounds 260m last year and, with profits of pounds 43m, accounted for most of Racal's pounds 70m earnings. In terms of sales, Racal Telecom is more than twice the size of Energis, the telecoms group which National Grid is to float this year with an estimated price tag of around pounds 1bn.

It was Racal's 1995 deal to buy British Rail's telecommunications operation, BRT, which catapulted Racal Telecom into a leading player in the market. Apart from supplying Railtrack and train operating companies with phone services, it also has extensive private networks and claims to be the biggest contractor to the Government.

Racal yesterday confirmed that the deadline for bids had closed, but insisted a sale was just not the only route to boosting the telecom's businesses prospects. "We're looking at all the options. Don't assume that there will be an outright sale. Don't assume anything," a spokesman said.

Sir Ernest Harrison, Racal's long-standing chief executive, launched the Merrill Lynch review after a series of damaging profits warnings at Racal which have dented his reputation as the leading defender of shareholder value.

At the time he indicated Racal Telecom was coming under increasing competitive pressure from rival telecoms groups which would depress its profits in the future.

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