While the City remains convinced that Sir Ernest Harrison proposes by Cable & Wireless Plc disposes – we’ve expressed our reservations on that score and won’t repeat them now – there is a small matter arising from Racal Electronics Plc’s decision to float off Vodafone as the Racal Telecomunications Group that deserves closer attention, and that is the mention the company made of the flotation facilitating agreements with continental would-be operators of digital cellular services. Racal has had this in mind for a very long time: when it bought out Vodafone minority shareholder Millicom Inc a year ago in exchange for Racal Electronics Plc shares – which ironically now represent about 90% of Millicom’s net assets – it hinted that it was unlikely to keep 100% of Vodafone for ever, and suggested it might trade some of the shares for a cosier relationship with one or more continentals. And it is indeed currently negotiating share-swaps of around 5% with a number of European cellular interests, although it is not prepared to name names. It says that flotation of the company which includes the Vodaphone cellular unit will greatly facilitate its plans for development of pan-European digital cellular radio relationships. These marriages of convenience are already driving the embryonic market but share swaps would consolidate such relationships in preparation for 1992 when the market is expected to take off. But, a Racal spokesman said, the full Racal Electronics Plc group is too big and complex an operation to embroil in such discussions where apples must be compared with apples. He added that over the past 12 months Racal has realised that its cellular activities have been undervalued and is anxious to rectify this imbalance before cementing any deals. Last week’s big share movement proves that we are right he said. Racal took a 4% interest of the French analogue cellular network in February in exchange for technical backing and support but reckons it will probably have to offer its partners an equivalent number of shares in its own network when the French go digital in 1992.
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