Racal Electronics PLC

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Racal Electronics PLC

Western Road, Bracknell
Berkshire RG12 1RG
United Kingdom
(344) 481-222

Public Company
Employees: 33,702
Sales: £1.6 billion (US$2.7 billion)
Stock Index: London

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 Britains 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 Racals annual revenues.

Raymond Brown and Calder Cunningham founded Racal as a two-man consulting firm in 1950. Seven years passed before Racal marketed its first proprietary product: a high-frequency radio receiver. Cunningham died the following year, in 1958, but the companys momentum continued. Racal went public in 1961. Brown guided Racal into the next decade, laying the groundwork for the companys future as a manufacturer of specialized radio equipment. At the time, most military radios were made according to Western specifications. Racal realized that countries with warm climates didnt need radios that could operate in freezing temperature. Company researchers visited equatorial countries, crawled around in trenches, and came up with a lighter, cheaper radio that gave Racal a competitive edge in the international market years before its first major British acquisition. The Squadcal, a tactical military man-pack radio, entered production in 1966.

That same year, Brown left his job as chairman to establish a sales department for the Ministry of Defence. Brown passed the companys 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 Racals tactical radio communications business. That same year, pretax profits exceeded £1 million for the first time.

The late 1960s also marked Racals 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 1977 Racal found itself in the middle of a bidding war for Milgo. The fight came as a surprise, since Racals bidding adversary, Applied Digital Data Systems Inc., a manufacturer of computer terminals, was considerably smaller than Racal. In January, 1977 Applied offered one and a half shares of its own common stock for every preferred share of Milgo stock, translating to a bid of $24 a share. Racal countered with a bid of $26.

Belief in the solidity of Applieds stock and its impressive growth record kept bidding going. By mid-February, the bidding hit $37 a share. According to Business Week analysts, Racal continually underestimated Applieds exchange offers, believing cash would always outweigh other types of bids. Racal eventually won the closely-contested battle, for an estimated $60 million, in part because it seemed the friendlier suitor.

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.

The Milgo and Vadic purchases increased U.S. sales tremendously, from $5 million to an estimated $355 million between 1976 and 1982.

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.

Another bidding contest, this time with rival British electronics firm General Electric, hiked Deccas sale price from $150 million to $250 million. The purchase, however, was looked upon as a victory because Racal beat the richer, more powerful General Electric. In the summer of the following year, 1981, Harrison was knighted. The company proclaimed the news to its employees by sending parachutists to land in the middle of a company picnic.

The knighting of Harrison was only confirmation of Racals success: operating profits and sales were growing as fast as 25%. Racals 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 Racals 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 riskone that already promises tremendous success.

Racals 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.

Part of Vodafones success was its market: gadget-minded Britain has more computers and video recorders per household than anywhere else in Europe. The size and population density of Britain were also factors in its success. But a more important reason was the increased competition among equipment suppliers. Japanese and American firms began entering the supply market, and as a result, equipment costs went down. Both Vodafone and its competing British cellular network stepped up development of their operations, to reach 90% of Englands population. By mid-1988, Racal had more than 170,000 subscribers calling each other from their cars or briefcases, and new customers were signing on at a rate of 15,000 a month.

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.

In response, Racal put 20% of Vodafone up for sale. Racal officials billed the move as a way to raise money for expansion of its other businesses, but it made a very effective takeover hedge, sending Racal shares soaring 35%.

Short of any takeover, Racals management succession is clear. David Elsbury, one of three deputy managing directors, was appointed deputy chief executive in 1983. Ten years younger than Harrison, Elsbury has been with Racal over 30 years. With him, a new generation of management has moved into senior positions.

We dont leave things Friday night to do Monday morning, one Racal executive told the New York Times. We will work over the weekend or all night if necessary, and thats very un-British. This successful management style, together with Racals ability to find and fill unexploited niches, promises to keep the company at the forefront of the electronics industry.

Principal Subsidiaries:

UK:- Decca Ltd; Ablex Audio Video Ltd; Decca Radio and Television Ltd; Decca Survey Overseas Ltd; Fibre Form Ltd; Racal-Decca Ltd; Racal Avionics Ltd; Racal-Decca Advanced Development Ltd; Racal-Decca Marine Navigation Ltd; Racal Defence Radar Ltd; Racal Defence Electonics (Radar) Ltd; Racal Defence Radar and Displays Ltd; Racal Marine Group Ltd; Racal Marine Electronics Ltd; Racal-MESL Ltd (Scotland); Racal Marine Systems Ltd; Racal Survey Ltd; Racal Survey China Ltd; Racal Survey (UK) Ltd; Racal-Decca Service Ltd; Weyrad (Electronics) Ltd; Racal-Chubb Ltd; Albert Marston & Co Ltd; Chubb & Sons Lock & Safe Company Ltd; Chubb Security Installations Ltd; Chubb Alarms Ltd; Chubb Wardens Ltd; Chubb Fire Security Ltd; Racal Panorama Ltd; Chubb International Ltd; Chubb (N.I.) Ltd; C E Marshall (Wolverhampton) Ltd; Josiah Parkes & Sons Ltd; Racal-Chubb Security Systems Ltd; Union Locks Ltd; I & F Willenhall Ltd; Racal Acoustics Ltd; Racal Antennas Ltd; Racal Automation Ltd; Racal Communications Ltd; Racal Communications Systems Ltd; Racal-Comsec Ltd; Racal-Dana Instruments Ltd; Racal Engineering Ltd; Racal Finance Ltd; Racal Group Services Ltd; Racal-Guardall (Scotland) Ltd; Racal-Guardall (Sales) Ltd; Racal Imaging Systems Ltd; Racal International Ltd; Racal Management Services Ltd; Racal Microelectronic Systems Ltd; Racal-Milgo Ltd; Racal Oil and Gas Ltd; Racal Properties Ltd; Racal Recorders Ltd; Racal-Redac Ltd; Racal-Redac UK Ltd; Racal Research Ltd; Racal Safety Ltd; Racal-Tacticom Ltd; British Communications Corporation Ltd; Racal-Mobilcal Ltd; Racal-Tacticom Systems Ltd; Racal Telecom PLC; Racal Cellular Ltd; Racal-Vodac Ltd; Racal-Vodafone Ltd; Racal-Vodata Ltd; Racal Training Services Ltd.; H.S. Control Systems Ltd.; Chubb Electronics Ltd.; Chubb Fire Ltd.; Chubb National Foam Ltd.; Racal-Redac Group Ltd.; Racal-Vodapage Ltd.

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