GEC visits old haunts

GEC visits old hauntsNew Labour is following old Labour in its enthusiasm for GEC mergers. But will George Simpson pick BAe or go US? David Manners reports You expect to see GEC shares to behave like those of a staid public utility – not too hot, not too cold – but last week they were in the go-go class starring as the greatest one-day riser in the FT100 index. Last year the shares drifted down to 327p; last week they topped 480p. Why? Well the feeling is that new boss Lord George Simpson has completed his review of the company’s activities, has sold off the bits he doesn’t want, and is about to engage in some creative deal-making. ‘Creative’ is used advisedly. The deals he’s supposed to be looking at are as old as the hills – a merger with British Aerospace or the takeover of a US defence company. In 1993, former GEC managing director Lord Arnold Weinstock talked mergers with British Aerospace’s then chairman John Cahill – to the point where merchant bankers were called in to settle the detail. In 1995 Weinstock talked again with British Aerospace’s current chairman, Dick Evans. However, although the two men virtually agreed a deal, it foundered on the scepticism of GEC directors. Ironically, it is New Labour which is now enthusiastic about the mergers. Ironically, because it was Old Labour under Harold Wilson, which promoted the GEC/English Electric/Associated Electrical Industries mergers in the late 1960s which gave GEC its dominance of the UK electrical/electronic industries. Following those takeovers some 35,000 people were laid off. If the GEC-British Aerospace merger goes ahead it is possible that blood-letting on a similar scale will be repeated. Already the City analysts are rubbing their hands at the ‘cost savings’ which, they estimate, could add ?230m to joint profits. For cost savings read sackings. For ?230m extra profits read an increased capital value of around ?2bn on the merged group. These are the kind of figures the City appreciates. Simpson will find himself under pressure to secure a deal. The end-game of such a deal could be a combined GEC/BAe merging with Daimler Benz Aerospace of Germany and Aerospatiale of France to form one defence/aerospace company called ‘EuroCo’. It’s the kind of ‘rationalisation’ socialist governments like. With socialist Prime Ministers in both France and Britain it may happen. However, there’s a different scenario if GEC goes trans-Atlantic for its next mega-deal rather than linking with BAe. City analysts have been suggesting that the recent US regulatory decision to block the Lockheed/Northrop Grumman merger in the US on the grounds of reduced competition, could mean that there will be opportunities for GEC to buy a company in America. Whether Simpson goes for BAe and Europe or for America, his strength has been as a deal-maker. The City is expecting fireworks.


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