| BUSINESSWEEK ONLINE : FEBRUARY 1, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- EUROPEAN BUSINESS
GEC: From Dowager to Sexy High-Tech Star? (int'l edition) Simpson is revamping GEC, but there's a long way to go George Simpson, the unassuming CEO of Britain's General Electric Co., has a knack for resuscitating sluggish companies and then selling tHem off for more than anyone expected. In 1994, while a top executive at British Aerospace PLC, he was credited with turning around its Rover carmaking subsidiary and then selling an 80% stake to Germany's BMW for $1.2 billion. He topped that deal on Jan. 19, selling GEC's defense electronics business to rival British Aerospace for $12 billion, mostly in stock--30% more than what most analysts believe it is worth. In a major shift, Simpson plans to use the estimated $4.5 billion cash now in company coffers to reposition GEC as a ''high-tech, high-growth, and high-margin company.'' Simpson, who took over in 1996, already had a good start--having shed $1.7 billion of unwanted GEC assets while bringing the company into new markets. Still, making dowdy GEC sexy may be more difficult than the 56-year-old Scot reckons. But that isn't stopping him. Once the sale of Marconi Electronic Systems is complete, what remains of GEC will be divided into three main businesses--telecommunications, high tech, and a mediocre mix of industrial holdings. Shareholders are taking a wait-and-see attitude. GEC shares dropped 9% in the first two days after the announcement. Simpson is taking a radically different approach from GEC founder Arnold Weinstock, who ran the company for 33 years. Weinstock avoided risk, hoarded cash, and turned a deaf ear to shareholders. Even in the face of shrinking defense budgets and global consolidation, Weinstock spent most of his money and energy developing the defense side of the business at the expense of GEC's technology and telecommunications holdings. In contrast, Simpson plans to bet big on Marconi Communications. The division, which accounts for nearly half of GEC's $6 billion in sales, makes advanced telecom equipment, especially voice and data transmission. The second strong card in his portfolio is Marconi Systems, a collection of three U.S. high-tech companies: medical equipment maker Picker International, a developer of fuel dispensing technology called Gilbarco Group, and Videojet Systems, a data storage and distribution company that offers opportunities in electronic commerce. As for the industrial holdings in GEC Capital, Simpson plans to invest enough to make them profitable. The betting is that he will then sell them off. Simpson played a masterful game in unloading the defense business. In order to make Marconi Electronic more attractive to buyers, for instance, he bulked up its portfolio by acquiring U.S. information systems company Tracor Aerospace and establishing a joint venture with Italy's Alenia. In June, 1998, he managed to wrest full control of GPT, a communications joint venture with Germany's Siemens, to strengthen the high-tech side of the business. PARADE OF SUITORS. With Europe's defense industry under intense pressure to consolidate, Simpson orchestrated a parade of suitors for Marconi Electronic, including Lockheed Martin, Northrop Grumman, France's Thomson-CSF, and Germany's DaimlerChrysler. Fearing that Marconi Electronic might be snapped up by a U.S. or European competitor, British Aerospace paid up. BAe's own merger talks with German defense contractor DASA were stalled, and it thought getting its hands on Marconi's defense electronics business was too good an opportunity to miss. BAe Chairman Richard Evans defends the deal as ''good news for shareholders, the U.K., and our future partners,'' based on his belief that it will accelerate further consolidation in the European defense industry. ''This changes the shape of the playing field,'' says Michael Tory, a managing director at Morgan Stanley Dean Witter, which represented GEC in the transaction. Although being freed of defense is a big step, analysts think GEC still has a long way to go before it can be a top player in the high-tech big leagues. Simpson's joint ventures and selective acquisitions have already started to change mind-sets at the company. But some analysts wonder if it is too little or too late for GEC to try to run with the likes of Lucent Technologies or Northern Telecom. Indeed, GEC's future growth will depend on how wisely Simpson spends his hard-earned cash. If his record as a savvy dealmaker is any indication, he's in the game to stay. By Kerry Capell in London _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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