Sir Ernest sees `more shareholder value' in Racal break-up

THE FINAL break-up of Sir Ernest Harrison's Racal Electronics empire came a step closer yesterday after the group unveiled plans to float its vehicle tracking business and placed a three-month timescale on the sale of its defence activities.

Sir Ernest also hinted that Racal's security arm, which provides services to banks and other financial institutions, could be spun off from the industrial electronics division with a price-tag of up to pounds 1bn.

The flotation of Racal's satellite vehicle tracking business, Global Telematics, is scheduled for the second half of next year and could raise around pounds 200m. The company is a 50:50 joint venture with European Telecom and operates in the UK and South Africa under the brand name Orchid.

Global Telematics deals only with fleet car customers such as Avis, Parcelforce, Imperial and Allied Pickfords and has revenues of just pounds 4m.

It made a loss of pounds 1m in the first half of this year but a similar sized Aim-listed company, Minor Planet Systems, is valued at pounds 180m. Sir Ernest, who has presided over the demerger of Vodafone and Chubb and the sale of the telecom division during his 33 years at the helm of Racal, said he had not yet set a retirement date.

He added: "I am sure there is more shareholder value to be realised."

The sale of the defence business, which accounts for just under half group sales, is to be completed in the first quarter of next year. It will be sold to an overseas defence supplier with Thomson CSF of France seen as the favoured buyer.

Prospects for the division, which has an order book of pounds 500m, could be boosted by a breakthrough with the troubled Bowman battlefield communications system which Racal is developing for the British Army along with BAe Systems and ITT.

The contract is two years behind schedule and now forecast to cost pounds 3bn - making it pounds 800m over budget. The Ministry of Defence has told the consortium, known as Archer, that it will not pay any more than pounds 2.2bn.

Racal has proposed a solution involving substituting its Panther VHF radio which is already commercially available in place of the radio being developed jointly with ITT. If the solution is accepted then Racal, which has a 30 per cent stake in Archer, would see its workshare rise.

Pre-tax profits for the half year ended 15 October were down 40 per cent at pounds 23.4m but Sir Ernest said he was confident of an improved outlook for the group's remaining businesses.

The pounds 1bn sale of Racal Telecom to Global Crossing has enabled the group to pay a pounds 491m special dividend to shareholders and wipe out all its debt.