Racal

Racal Electronics PLC is a multinational manufacturer and service provider in telecommunications, security, data communications, defense radar and avionics, marine and energy electronics, radio communications, and specialized electronics. A conglomerate of some 150 medium-sized, autonomous companies, Racal was named "best-managed company" between 1976 and 1985 by Britain's prestigious Management Today magazine. Racal operates through a network of subsidiaries in England, the United States, Europe, and Asia. Twenty of these subsidiaries are in North America. Overall, sales outside of the United Kingdom account for more than 54% of Racal's annual revenues. That same year, Brown left his job as chairman to establish a sales department for the Ministry of Defense. Brown passed the company's reins to Ernest Harrison, who started with Racal as an auditor soon after its founding and became its chief accountant on his way to becoming chairman and CEO. Under Harrison Racal experienced its greatest period of growth and acquisition. In 1969, Harrison orchestrated a merger between Racal and British Communications Corporation, a move that strengthened Racal's tactical radio communications business. That same year, pretax profits exceeded ¥1 million for the first time. The late 1960s also marked Racal's entry into the data communications industry. In 1969, Racal entered a partnership with Milgo Electronic Corporation of the United States, creating Racal-Milgo Ltd. and paving the way for a strengthened presence in the U.S. In the years that followed, the Racal-Milgo partnership prospered. Racal too prospered overall, reaching sales of $140 million in the mid-1970s. In the months that followed, however, Racal dragged Milgo through an executive shakeout. Five top Milgo executives resigned, allowing Racal to staff Milgo with its own people. Next, Racal acquired Vadic Corporation, a maker of low- and medium-speed modems, for $10 million, as a part of its aggressive push into data communications. Racal also set up two American firms on its own. In 1980, Racal bought the British firm Decca Ltd. Analysts at the time believed that Decca would give Racal too many businesses "irrelevant" to its major activities. But the company pursued Decca for its expertise in radar, microwave frequency radios, and electronic warfare systems. Racal believed it had too many holes in its military offerings to satisfy the many governments, especially in the Third World, who wanted a single supplier for all their needs. With Decca, Racal acquired defense radar, avionics, and marine and survey electronics capabilities. The knighting of Harrison was only confirmation of Racal's success: operating profits and sales were growing as fast as 25%. Racal's growth continued until the time of its next big acquisition: the £180 million purchase of Chubb and Son PLC, a security firm with sales in the U.S., Canada, and elsewhere. The purchase of Chubb made security Racal's single largest activity; a year after the purchase, security products accounted for 28% of sales. In 1985. Racal began to suffer from a shakeout in the information technology industry. A recession in the American data communications industry dealt a severe blow: Racal-Milgo and Racal-Vadic, once accounting for 40% of total revenues, totaled only 27% at mid year. At the time of its greatest slump, Racal took another risk--one that already promises tremendous success. Racal's gamble was to set up a cellular telephone network in Britain. Start-up costs for Vodafone, as the network is called, cut deeply into profits in 1985. but two years later Racal reported a third of its profits from the cellular network. The stunning success of Vodafone made the recently struggling electronics firm a turnaround candidate and a prime target for takeover. In the spring of 1988, trading on Racal stock began to increase, signaling an imminent takeover bid. Short of any takeover, Racal's management succession is clear. Dav