Millicom Inc is seeking the support of other Racal Electronics Plc shareholders for a proposal that the company abandon its plans to sell a minority in its Vodafone cellular business, and instead make a free distribution of all the shares in the business pro rate to to all holders, divesting the business completely. Racal is due to announce today details of the planned flotation of the Vodafone unit, Racal Data Communications Plc: it is expected to sell about 20% of the equity for about UKP400m – Millicom believes it will be 25% for UKP500m – with half the available shares being offered to existing shareholders on a rights issue basis, the other half being offered in the US and Japan on the expectation that New York and Tokyo will put a higher valuation on the business than will London. Millicom is seeking proxies among shareholders to back its plan, which would require holders of 50% of the shares to vote for it in order for it to succeed. It is unlikely that Millicom would get that level of support, and it is ironic that a US company should be leading the fight, since in the US the kind of partial flotation of a cellular unit that Racal proposes is a routine event, and has had no opposition from shareholders. Millicom is concerned about Racal’s plans because it made a $3.7m loss on sales of $7.9m in the first quarter, and its 5% holding in Racal Electronics is its single biggest asset. And it likely cannot afford the cash it would need to take up its rights in the Vodafone share flotation. Cable & Wireless Plc, sitting on 2.8% of Racal’s equity, has been hinting that it would like to merge Vodafone with its Mercury Communications subsidiary, and that it that is not possible, it may seek a UK cellular licence of its own to become a third force in the business. If it did, Vodafone’s perceived value would be reduced.
