Outlook: The importance of being a realist, Ernest
Wednesday 03 February 1999
Now that he is reaching the twilight of his career Sir Ernest, 72, is keen to pull off one last deal that the City can remember him by and shareholders can thank him for. The disposal of Racal Telecom, however, is proving more of a problem than Sir Ernest bargained for.
It is now more than a year since Racal announced its intention to float the business after plans for a trade sale failed to solicit any offers above pounds 450m. Since then the Racal share price has powered ahead in the hope that Sir Ernest can reproduce some of his old magic.
But not much else has happened. Racal Telecom is still short of a chief executive and its trading performance remains pedestrian. Although the company still talks optimistically about a flotation this year, the timing could easily slip into the new millennium.
Now, however, there is a serious bidder back at the table. Dick Callahan, the former president of US West, has offered to pay Sir Ernest pounds 700m to take Racal Telecom off his hands. Mr Callahan's financial backers are impressive - his bid is being funded by Bank of America and GE Capital. Furthermore, Callahan Associates, the vehicle for the bid, has offered Sir Ernest a deal whereby he can retain up to half the business and thereby share in the upside once it is under more dynamic management.
Sir Ernest, however, has rejected the offer. He has one eye on the track record of Vodafone and the other on the stratospheric share price performance of Energis. On that basis, he reckons he can get more for the business.
There are some important similarities between Energis and Racal Telecom. While the Energis network is strung along the National Grid's electricity pylons, Racal Telecom got into business by snapping up British Rail Telecom, whose network is strung along the rail network.
But there are also some important differences. The sky-high rating of Energis owes much to its growth record. Under Mike Grabiner, it is expanding at a rate of 75 per cent while lucrative data traffic is doubling each year. In contrast, Racal Telecom's margins are falling and its growth rate is a sluggish 5 per cent. Moreover, many of the juicy contracts with train operators and Railtrack that were used to fatten up British Rail Telecom for privatisation are coming up for renewal.
Sir Ernest is spending this week with the institutions explaining why his strategy for floating the business remains the best course. It will not be an easy task. There is now a pounds 700m bid on the table and the chance for shareholders to gain from any upside in Racal Telecom. Furthermore, a trade sale of the telecoms arm could be the catalyst for the complete break-up of the group and the sale of the defence electronics business to BAe-Marconi or one of several European suitors. Sir Ernest has defied the odds before. But on this occasion, investors need to ask him some hard questions.
- 1 Allonautilus scrobiculatus: World's 'rarest' creature spotted for only the third time ever
- 2 Miley Cyrus calls out hypocrisy of women’s nipples being taboo
- 3 Celebrity Big Brother 2015: Tila Tequila kicked off show after 'describing Hitler as a good man'
- 4 Jozef Wesołowski: Former Catholic archbishop found dead ahead of child sexual abuse trial
- 5 Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
Spain accused of 'provocation' after letting Russian submarine refuel off Gibraltar
Allonautilus scrobiculatus: World's 'rarest' creature spotted for only the third time ever
Miley Cyrus address Robin Thicke VMA controversy: ‘He wanted me as naked as possible, but I got the heat because I’m a woman’
Miley Cyrus calls out hypocrisy of women’s nipples being taboo
Celebrity Big Brother 2015: Tila Tequila kicked off show after 'describing Hitler as a good man'
Labour leadership: Jeremy Corbyn accused of 'deluding' young supporters with 'claptrap'
'Women only' train carriages: Jeremy Corbyn unveils radical move to tackle public harassment
Black holes are a passage to another universe, says Stephen Hawking
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
Iain Duncan Smith calls for urgent ESA overhaul as part of drive to cut down welfare costs
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...