Any chairman that has not learned the lesson of Racal Electronics Plc’s masterstroke in floating a small minority in its Racal Telecommunications Group Plc cellular radio and allied businesses and scoured his own company for some undervalued jewel deserving of the market’s attention is not worth his reserved parking space. In the scale of these things, Racal, despite being a brave pioneer, got the thing away relatively easily, and shareholders should be congratulating themselves that they ignored the silly squawking of Millicom Inc – given the rise in Racal Electronics’ share price in the wake of the flotation, it is difficult to see how they would now be better off had the Millicom proposals been followed, although we’ll be happy to print a letter setting out the contrary viewpoint. Word over the weekend is that Cable & Wireless Plc, seeing a need to deflect attention from its now embarrassingly large dependence on the Hong Kong and mainland China markets, is now thinking much more seriously than hitherto about a flotation of a minority in Mercury Communications Ltd, and it is difficult to see serious arguments against such a move for as long as US sharebuyers continue to value emreging telecommunications companies at substantial premiums by ignoring the losses or low level of profits – maiden profits are on the way at Mercury and instead looking at discounted cash flow, an approach that has sent the shares of Eurotunnel units and warrants soaring into the stratosphere. Premium Software and systems houses are not yet valued on the same kind of premium as telecommunications companies – they are at present seen as carrying too high a level of risk, but the next bid for a big European systems company on the back of the rush into systems integration could well change all that, and such companies already trade on handy multiples. Plessey Co has clearly done the right thing by reducing its stake in Hoskyns Group Plc to 73% from the previous 98%, even though any re-rating of Hoskyns is likely to come too late to save Plessey from takeover in itself. But the whole rationale for Siemens AG’s involvement in the GEC Siemens Plc bid for Plessey is blown out of the water by the fact that Siemens is evidently complaisant about Plessey Semiconductors going in a management buyout, and according to the Financial Times has said that all it is really interested in with regard to Plessey is the telecommunications. Unfortunately for Plessey, despite GEC Plc doing deals on power stations and medical electronics with its biggest competitors, it remains sufficiently loyal to GEC that it is not prepared to do a simple deal on GEC Plessey Telecommunications and leave it at that. The other flotation in the electronics sector that now seems to be begging to be made is the one we highlighted yesterday – that of Thorn EMI Plc’s software and computer services businesses regrouped under the well-established Software Sciences name. Since Thorn’s chairman and chief executive Colin Southgate founded Software Sciences, one must assume that the idea of seeing his creation a free-standing quoted company would appeal to him, and flotation of 25% to 30% of the equity would mean that if a bidder did come in for the company, its value would be maximised by the need to satisfy shareholders with a bid premium.
