The decision to float Racal Telecoms follows the group's failure to find a trade buyer prepared to pay a high enough price. The business is expected to be valued at anywhere between pounds 500m and pounds 1bn when it is listed.
However, no timetable has been set for the flotation nor has Racal decided what proportion of the business will be sold off or how the proceeds will be used.
Sir Ernest said: "We were seeking partnerships for Racal Telecoms which might enhance the business and we received many interesting offers but did not believe any of them gave shareholder value."
The data communications business, which employs 2,500 and made a loss of pounds 18.4m in the first half of the year, will be disposed of in the next three to six months.
The investment bank Goldman Sachs is handling the sale and has already received several expressions of interest. Racal would not be drawn on whether it would make a profit from the disposal.
The data business has assets worth pounds 223m, of which pounds 90m is in the form of property and finance lease receivables.
But the sale will result in a goodwill write back of pounds 112m and further unquantified provisions for restructuring.
Together telecoms and data communications have sales of about pounds 600m a year. Once they are separated out, the remainder of the group consisting of defence electronics and the instrumentation, recording and survey business with sales of pounds 550m and annual profits of pounds 42m.
This is the third radical reorganisation of the Racal group under Sir Ernest. He demerged the mobile telephone business Vodafone in September, 1991. The day after that, Williams Holdings made an unsuccessful hostile bid for the remainder of the group. After fending off Williams he then demerged the locks business Chubb in October 1992. Its value then was pounds 366m. Williams subsequently bought Chubb earlier this year paying three times that amount.
Sir Ernest, 71, who joined the group the year after it was founded in 1950, refused to be drawn on whether this latest corporate restructuring would be his swansong, saying: "This company has a lot of shareholder value yet to be released and I would very much like to be around to ensure we achieve what is possible."
Racal Telecoms is a business telecoms operator which uses a network built around the national rail network. It is similar to Energis, which the National Grid floated earlier this week for pounds 846m. However, Racal executives would not be drawn on the likely valuation of their business.
Racal Telecom was created through the combination of Racal's existing business telecoms division and British Rail Telecom, which it bought for pounds 140m two years ago. In the six months to 10 October it made a profit of pounds 16.5m on sales of pounds 140m. Sales growth slowed to 2 per cent during the period because of reduced income from the network of National Lottery terminals and lower railway income.
About half its business comes from contracts with the privatised rail companies. Other customers include W H Smith, Heinz, ICI, Zeneca and a range of government departments.
Racal blamed the escalating losses in data communications on delays in new product launches.
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