Racal poised for break-up with pounds 750m telecoms sale

RACAL ELECTRONICS is poised to sell its telecoms arm to Energis for pounds 750m, paving the way for the final break-up of the group, one of the biggest industrial success stories of the post-war years.

The company, led by its 73-year-old chairman Sir Ernest Harrison, is understood to have given Energis exclusive rights to negotiate the purchase of the business and an announcement is expected in the next four to six weeks.

The sale of the telecoms business is expected to be followed by the auctioning off of Racal's two other businesses - defence and industrial electronics - bringing down the curtain on a half-century of corporate wheeling and dealing.

Provided the sale to Energis goes through, it will cap a remarkable hat- trick of successes for Sir Ernest who has already demerged the group twice, first by floating Vodafone and then by spinning off the security arm Chubb. Anyone who invested pounds 1,000 in Racal in 1966, the year Sir Ernest took the reins, would now be sitting on pounds 5m.

Racal bought the telecoms business from British Rail for pounds 135m in 1995 and had originally planned to float it on the stock market. A takeover of the business by Energis would consolidate its position as Britain's third telecoms group behind British Telecom and Cable & Wireless, with sales in the coming year approaching pounds 600m. It would also give Energis a more comprehensive national network, taking in Scotland and Wales as well as a string of lucrative government and defence telecoms contracts.

Racal has been attempting to dispose of its telecoms interests for two years. Earlier this year Sir Ernest rejected a pounds 700m offer for the business from Callahan Associates, an investment vehicle run by the former president of US West, Dick Callahan.

Although the performance of Racal's telecoms arm has been pedestrian in comparison with the likes of Energis, achieving only single-figure sales growth, it is acknowledged as having a high quality network with huge potential. Sales last year were pounds 296m - an increase of less than 7 per cent on the previous year.

Industry sources cautioned, however, that the sale to Energis was not yet a done deal. "There is still a lot of information to crunch, which means we are talking about several weeks until completion," said one. "Ernie must also be careful not to be too greedy. Energis is the natural owner of this business but it does not have to own it and it will not overpay."

Racal's defence electronics arm, which specialises in electronic warfare radar and command information systems, would almost certainly be acquired by one of the big defence contractors, with British Aerospace-Marconi, Thomson CSF and Raytheon of the US all possible suitors.

Racal also has a 27 per cent stake in the National Lottery operator, Camelot, held through its industrial electronics division which makes secure payment systems, testing instrumentation and recording equipment. The group disposed of its heavily loss-making data communications businesses a year ago.

Racal was founded in 1950 by Ray Brown and Calder Cunningham who gave it its name by joining together the first three letters of their christian names. Their first product was a radio receiver. Racal Telecoms is valued at just over pounds 1bn today but VodafoneAirtouch, as it is now known, is worth pounds 73bn alone.

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