British Aerospace Flies off with GEC's Marconi

Robert C. Pini

This home to renowned air shows recently saw some stratospheric maneuvering of another sort when British Aerospace plc announced it would sign a deal to merge with the Marconi Electronics Systems business of GEC-Marconi plc, including its electro-optics division and infrared detector subsidiary Cincinnati Electronics Corp. in Mason, Ohio.
A GEC-Marconi spokesman described the deal as a demerger of Marconi Electronics Systems in Stanmore and General Electric Co. in London, followed by the merger of Marconi with British Aerospace. The sequence brought a swift end to any uncertainty about Marconi's future in the consolidation of the European defense industry. And according to a Marconi spokesman, it brought maximum value to shareholders on two counts: immediate return and long-term strategic benefit.
The merger creates the world's second-largest defense contractor after Lockheed Martin in the US, at a cost to British Aerospace of 14.96 billion euros ($12.9 billion). It also leaves a cash-rich GEC, which seeks to boost its business in telecoms and electronic systems for medical, retail and commercial markets.
With a good balance sheet, GEC is reportedly looking for acquisitions that can provide leading-edge technologies to add market share in wavelength division multiplexing systems and to complement its strengths in synchronous digital hierarchy and SONET equipment. Perhaps something like a JDS Uniphase? "We'll leave you to speculate on that one," said a Marconi spokesman.

Disappointed suitors
The merger also left behind soured hopes for cross-border partnering of European defense companies. British Aerospace reportedly left DaimlerChrysler Aerospace of Munich, Germany, standing at the gate, while Marconi disappointed a bid by Thomson-CSF of Paris.
The definitive merger agreement is to be signed this month, but regulatory approval could take up to six months longer. Although the top brass has made decisions on all the headline issues, no plans have yet been drawn up as to how the consolidation will affect the organization of product lines. Likewise, no timetable has been set for the development of a rationalizing strategy. Sources for both companies say there is little overlap between them and note that they have teamed up previously on projects such as the Eurofighter 2000.