Racal Electronics Plc has formally announced its intention to demerge Racal Telecom Plc from the group, drop plans for a management buyout and defer demerger of Racal Chubb until the end of the year, when it will be considered anew. Speaking at the annual results meeting, the Racal group chairman Sir Ernest Harrison said that the demerger was designed to protected shareholder’s interests, noting that since the plans were announced last November, Racal’s share price had risen 42 points, to reflect the true value of the company. Racal Data Networks, which runs the Government Data Network, is to remain within the Racal Electronics group and Sir Ernest promised that after the demerger all energies would be put into getting the data business, including the US data subsidiary Racal Milgo, back into profit. Sir Ernest said that building up the Telecom business had consumed a lot of resources, and that the demerger would enable the group to refocus. He also stressed that the board of Racal Telecom was very pleased to be able to stand on its own two feet, and make decisions without constantly referring to a parent company. However there will still be some sharing of research and development budgets and facilities, although to a lesser extent than before. To smooth the demerger, Racal Telecom will pay a one off dividend of 5 pence per share. Holders of Racal Electronic’s shares will receive 57 Telecom shares for every 100 Racal Electronic shares held and, subject to a smooth annual general meeting of shareholders, the shares will be distributed in September. In August, Racal Electronics will issue 4m ordinary new shares of Racal Telecom, so that its holding in the company can be brought fully up to 80% – it is just below that at the moment. Racal Electronics needs to hold a full 80% in Telecom in order to protect its American shareholders from adverse tax effects following demerger. Sir Ernest is to become non-executive chairman of Racal Telecom, as executive chairman of Racal Electronics, he currently chairs Racal Telecom too. He said that plans for a management buyout of Racal Electronics had been dropped because of the wishes of shareholders – they had been concerned, he said, about a conflict of interests between shareholders and management, over the potential pricing of the company. Shareholder wishes – that Telecom be disposed of as quickly as possible – are also the reason for the deferral of the Chubb spin-out, doing both at once would have been complicated, said Sir Ernest, and taken much longer. Racal Telecom reported end of year turnover up 32% on the previous year, with pre-tax profits up 48% at UKP244.7m. The rate of connection of new subscribers to Telecom’s cellular Vodafone network is still declining – it has been losing more than it signed, affected, said Telecom, by the recession, but usage rate – the actual amount of time spent on the phone is levelling off – it had also been in decline. The average subscriber is worth around UKP700, down from UKP760 last year. Vodafone has 675,000 subscribers, although the churn rate – the number dropping out, remains quite high at 20%.
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