There is a widespread conviction in the City that Racal Electronics Plc announced its embryonic plans to float off its Vodafone subsidiary and sundry related activities prematurely last week because it was worried about unusual activity in its shares, and in particular a strong suspicion that Cable & Wireless Plc was stakebuilding. So many observers seem to be convinced that Cable & Wireless has indeed been lining up a bid for Racal that it is difficult to dismiss the gossip out of hand – Cables never comments on market rumours and Racal hasn’t identified a definite cuckoo on its share register, so the available facts are thin. If Cables is indeed preparing to lay siege to Racal, the property that has excited its green eye is clearly Vodafone, the addition of which to Mercury Communications would clearly make the latter a much more substantial counterweight to the Hong Kong businesses that make Cables look decidedly lop-sided and listing steeply towards the East. But a successful bid for and break-up of Racal in order to win Vodafone would be a quite remarkably tricky coup to stage, if, as one assumes, Cables, with all those lovely cash-generating telephone businesses around the world, still has its back firmly turned against adding a manufacturing arm to the business. Foolish It would surely be foolish to stage a bid for Racal without lining up potential buyers for all the businesses it didn’t want, and while GEC would clearly love the lot, if GEC was forbidden by the Monopolies & Mergers Commission from proceeding with its bid for Plessey, there seems little chance that it would get a fairer wind if it tried to buy Racal’s defence interests. Moreover GEC was the unsuccessful bidder for the cellular franchise that became Vodafone: why should it make it any easier for Cables to win something that it wanted in the first place? On the grounds that Racal’s defence businesses are deemed to be of national importance – if Plessey was effectively blocked from buying Harris in an agreed bid, why should the UK Ministry of Defence allow Harris or one of its siblings to buy Racal? – one is effectively left with Plessey, Ferranti International and STC as potential buyers for all the bits of Racal that Cables doesn’t want. All three might like the defence businesses, although there are monopoly issues in the radio field if Plessey got it, and does Plessey really want Racal Data Communications? Does STC, for that matter? Ferranti is probably the one that would be most interested in all the bits of Racal Cables wouldn’t want but after taking in International Signal & Control, Ferranti is not exactly rolling in cash. And once GEC is ruled out, Cables comes close to being a forced seller of all the bits of Racal it wouldn’t want. But if those bits therefore had to be sold rather cheaply after Cables had paid top dollar – ensured by the Vodafone flotation promise – for the whole company, Cable & Wireless shareholders could make life very uncomfortable for the board. Once it has thought all that through, it seems likely that Cable & Wireless, which has so far shown itself to be an unusually intelligent and astute company, will resign itself to picking up as much as it can of Vodafone when Racal floats it off, and hoping to be in a position to sign some kind of collaborative deal with the new company.
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