Reborn GEC primed for take-off

Reborn GEC primed for take-offThe sale of Marconi Electronic Systems to BAe has given GEC around ?2.5bn spending money and MD George Simpson already has plans for it, says Alex Mayhew-Smith
GEC has been involved in the defence business since World War I, when the company produced radios, signalling lamps and
arc lamp carbons. Now it has exited its defence interests wholesale with the announced intention to sell Marconi Electronic Systems (MES) to British Aerospace. At the same time it will cut its turnover by about a half.
George Simpson, GEC’s managing director, described the deal as a “win-win” transaction with neither firm coming out on top of the other. However, one benefit for Simpson is that GEC does not now have to deal with the disfavour that British Aerospace (BAe) faces for having apparently set back plans for a single European defence company.
What is left of GEC will be organised into three groups; Marconi Communications, Marconi Systems and GEC Capital. By far the largest of these groups will be Marconi Communications, which until last summer was jointly owned with Siemens. Marconi Communications designs and manufactures a range of telecoms systems such as SDH optical fibre transmission equipment, switches, payphones, and digital mobile radio systems for the emergency services.
Marconi Communications, which employs around 18,500 people, will account for about half of GEC’s total turnover once the defence arm has been shed.
Marconi Systems will include Gilbarco, makers of fuel delivery systems and Picker International, a medical imaging firm. GEC Capital will be made up of large investments, such as its 24 per cent stake in the Alstom joint venture, and GEC’s domestic appliance businesses, such as Avery Berkel, Hotpoint and Creda.
Under Simpson, GEC is a company undergoing a transformation. What it will eventually become is an interesting question to consider.
It will have over ?2.5bn at the conclusion of the deal with BAe and Simpson has already declared his intention to spend it. “We have no intention of keeping it. We have examined the possibilities and already have some ideas. The priority is to invest in growing the business,” said Simpson.
There is no doubt in Simpson’s mind that he plans to re-invent the firm, focusing on telecommunications systems: “It is the rebirth of GEC, focused on a modern, big and growing market,” said Simpson.
Beyond that, exactly what its plans are is hard to guess at; will it stick to manufacturing or move into research and development?
If GEC wants to earn itself a leading place in the telecommunications industry, there are a number of routes it can take. With the bidding for the UMTS next generation of mobile phones drawing closer, it could enter into that arena. It could even afford to buy a mobile phone operator and has shown an interest in acquiring a mobile operator’s license previously (remember Telepoint and CT-2).
Or why not link up with Symbian, the pioneer of Psion’s EPOC operating system which is expected to produce a new generation of wireless communication and information devices? The firm’s options seem endless and with Simpson at the helm may be we can expect something spectacular. What now for Europe’s defence consolidation dreams?
It is always a relief when a rumoured business deal emerges blinking from the conference room into the glare of the interntaional spotlight.
For weeks speculation has surrounded the outcome of a series of talks which seem to have included all the major European defence companies at one point or another. And now the first deal has been declared in what promises to be a round of consolidation that will transform the defence industry in Europe.
But what effect will the BAe/Marconi Electronic Systems have on future negotiations? Is Dasa, one of Germany’s leading defence businesses owned by Daimler Chrysler, miffed at having its negotiations with BAe interrupted by GEC? Are the French cheesed-off at seeing a British company making British deals possibly before French deals?
Dasa has responded to the deal by saying the chances of a merger with BAe were now impossible. The firm added that it would be considering US partners as well as other European defence firms.
Leading French defence company Thomson CSF has also criticised the BAe/Marconi deal after it had proposed a merger with GEC’s Marconi.
According to GEC managing director Lord Simpson, there was a point where Dasa, BAe and GEC attended the same meeting and discussed a three-way tie-up. But now BAe will become the world’s third largest defence firm after the merger of Marconi Electronic Systems. Any Negotiations with Dasa will have to begin completely anew, for BAe will no longer be the same company that it was during the previous talks.
BAe has said it still wants to make a deal with Dasa and it has all along been encouraged by the British Government to do so. There is no doubt that BAe’s deal with GEC was a good bit of business. The question now is whether it was a good political move.
BAe joins the big boys in defence
There’s no business like the defence business, as British Aerospace knows. And if opportunities come along, you have to take them, as John Weston, BAe CEO says. The chance to acquire Marconi Electronic Systems (MES) was too good an opportunity to miss.
With the addition of MES, British Aerospace will become the world’s third largest defence company, behind Lockheed Martin and Boeing.
MES will bring to BAe new areas of work, including shipbuilding, avionics, radar systems, missiles and munitions. For the financial year of 1997, MEShad a turnover of around ?3.7bn and will take BAe’s total turnover to an estimated ?12.3bn. It is also one of the few remaining British ship builders, with particular experience in submarine building.
The addition of MES to BAe will give the firm a much bigger electronics capability, with expertise in specific areas such as electro-optics, infra-red sensors, communications systems and air defence systems. < br />The company will consist of three divisions, BAe Defence, BAe Commercial Aerospace and Marconi Electronic Systems. MES will be renamed since BAe will not acquire the right to the Marconi name; Dick Evans, BAe’s chairman, insists the British Aerospace name is as well respected as Marconi.
Although BAe will take on MES’ debt of ?1.5bn, Evans predicts that in three years time BAe earnings will be enhanced by 10 per cent. By 2002 there will be annual cost savings of ?275m, claims BAe but according to Weston there will be some redundancies. The firm insists there will be no site closures or wholesale job cuts.
BAe still wants to be a part of a larger European defence firm and will acquire several European joint ventures with MES. These include joint ventures such as missile business Alenia Marconi Systems and sonar firm Thomson Marconi Sonar.
BAe will not only expand its turnover but also extend its portfolio significantly with the addition of MES. The electronics capability that MES gives BAe will allow the firm to bid for contracts as a systems integrator, with the ability to provide the construction of every aspect of a military aircraft or ship. It begs the question as to whether BAe now needs to tie up its interests in a consolidated European defence firm.

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