Deutsche Telekom rules out Racal bid

Racal's hopes of gaining a premium price for its telecommunications business faded yesterday when it emerged that Deutsche Telekom, the world's third-largest telephones group, had declined to bid for the network.

At least one other continental telephones giant, Telecom Italia, had examined making a provisional offer before last month's deadline for bids, but has also backed away. AT&T, the world's second-largest phone company which is frequently tipped to buy a UK network, had also taken an interest in the sale but has decided not to make an offer.

Deutsche was thought to be considering buying a 60 per cent stake in Racal Telecom, leaving Racal with the remaining 40 per cent in a deal which would value the telephones and data network at around pounds 575m. However, industry watchers had doubted Deutsche's intentions because the company is also expected to include Cable & Wireless in its Global One alliance with France Telecom and Sprint of the US, a move which would give the German group access to C&W's own UK network.

The decision by Deutsche not to launch a formal bid leaves just one confirmed contender in the running - Duncan Lewis, the former senior Granada executive and chief executive of the old Mercury phones business. Mr Lewis has been backed by Schroder Ventures, the venture capital arm of the merchant bank and is thought to be offering around pounds 450m for all of the business.

Sir Ernest Harrison, Racal's long-standing chairman, announced the review of the future of Racal Telecom and the group's data products division in June after a string of profit warnings dented the company's share price. Merrill Lynch, the US investment bank, was appointed to search for partners for the telecoms business, though Racal has not ruled out a sale of the whole division.

Racal Telecom is one of the UK's largest networks, with 5,700km of optical fibre and 7,000km of copper wire. It includes the old British Rail telecommunications operation, which runs alongside railway tracks, which Racal bought for pounds 130m in 1995.

A Racal spokesman declined to comment on the discussions, though sources close to the company insisted that more than one bidder had thrown their hat into the ring before the deadline expired.

- Chris Godsmark