Britain’s GEC Acts to Boost Merger Talks
Britain’s General Electric Co. said Tuesday it will separate its weapons business from the rest of the company to advance merger talks with other arms makers.
GEC’s Marconi defense unit accounts for half of the company’s sales of $10.5 billion. It includes electronic controls for missiles, satellites and submarines.
After the split, GEC will be left with two main units, its telecommunications division and its traditional industrial businesses, which include gas turbines, high-speed trains and petrol pumps. This month, the company said it seeks high-margin, high-technology acquisitions to lower its dependence on its traditional businesses.
The move comes as European defense companies seek to combine to compete more effectively with U.S. rivals such as Boeing Co. and Lockheed Martin Corp.
GEC recently revived discussions with British Aerospace, Europe’s biggest defense company, after British Aerospace intensified talks with DaimlerChrysler’s aerospace unit, known as Dasa.
GEC, which is unrelated to General Electric Co. of the United States, said Tuesday that merger talks “are proceeding well.” GEC has said it is in “intense” merger talks with British Aerospace, among other defense companies.
“The best deal would be a triumvirate” including BAe, Dasa and GEC’s Marconi, said Dominic Wallington, a money manager at Credit Suisse Asset Management.
GEC and BAe, whose products include Tornado fighter jets and turboprop planes, have discussed a merger several times in the past five years. The British companies still could combine before merging with Dasa to form a pan-European aerospace and defense company.
GEC renewed talks with BAe because it “doesn’t want to be left out” of the industry consolidation, said Salomon Smith Barney analyst Nick Cunningham.
A BAe-Dasa merger is considered more significant by most analysts because it would create the world’s third-largest defense company.
Talks between Dasa and BAe are on hold during the Christmas holidays, a Dasa spokesman said.
A BAe-GEC merger “is going to happen,” said Howard Wheeldon, an analyst with Matheson Investment Ltd., who added that a BAe-Dasa merger is more important. BAe hasn’t commented on the status of merger talks with Dasa.
GEC’s board is continuing to review options and the company has been talking with several “global” companies, it said. However, “the degree of expectation in the media is out of kilter with what’s happening,” a GEC spokesman said.
GEC has also said it wants to expand in the United States, possibly combining with a major defense supplier such as Northrop Grumman Corp. or TRW Inc. Such a move would boost its share in the world’s biggest military market. It’s already the sixth-largest supplier of defense electronics in the U.S.
