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Tuesday, October 12, 1999 Published at 12:29 GMT 13:29 UK

Business: The Company File

Racal sells telecoms division

UK electronics firm, Racal, is to sell its telecoms business to the American communications group, Global Crossing, for 1bn.

The telecoms revolution
The sale will boost Racal's end of year profits by 600m - and investors are set to share in the takings as 500m is returned to shareholders in a windfall. The cash payout will be 167p a share.

As well as telecommunications, Racal's operations cover defence electronics - including avionics, command and control systems, radar, and radio and communications equipment - and industrial electronics such as communications recording equipment, point-of-sale terminals and secure payment systems.

It is also a partner in the UK lottery operating company, Camelot.

Racal Telecom

Racal began operating in telecoms in 1988 when it was appointed by the UK government to set up and operate the Government Data Network.

The business currently provides communications to more than 30 government departments. The company took over BR Communications in 1995 when British Rail was privatised.

The deal gave the group control of the BR telecoms network laid alongside intercity railway tracks across the UK.

Global Crossing operates a state-of-the-art telecoms network in the US and will use Racal's business as a bridgehead into the European market.

Its huge cash offer beats a bid by UK group Energis, reported to be in the region of 800m. Racal and Energis had announced that they were in talks in September.

Chairman's swansong

Sir Ernest Harrison, chairman of Racal, said: "Looking to the future, Racal will be in a much stronger position to develop its portfolio of valuable businesses to maximise shareholder value."

The company has long been planning to sell off its telecoms business, either through a flotation or trade sale.

The deal will be regarded as part of 73-year-old Sir Ernest's swansong. He has been chairman and chief executive of the group since 1966 and is expected to retire next year.

Once completed, the sale will leave Racal to focus on its defence electronics, industrial electronics and transportation services.

Excluding the telecom business being sold, Racal Electronics had sales of 926m, with an operating profit of 95m, in the year to March 1999. In the same period, Racal Telecom made an operating profit of 2.6m before exceptional costs on sales of 199m.

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