Alsthom flotation arms GEC with pounds 2.5bn war chest for acquisitions

GEC yesterday launched a long-awaited restructuring by announcing the flotation of the Anglo-French joint venture GEC- Alsthom, a pounds 300m share buy-back and further disposals of UK industrial businesses. Once completed, the managing director George Simpson will have a pounds 2.5bn cash pile at his disposal. Michael Harrison examines how he might spend it.

The flotation of GEC-Alsthom will take place in the first half of next year and is expected to value the power systems and transportation group at between pounds 4bn and pounds 5bn. GEC and Alcatel Alsthom are selling off 52 per cent of their combined holdings and have agreed not to dispose of the remaining 48 per cent for a year after the flotation.

On flotation, the company will be renamed Alsthom and will be listed in Paris, London and New York with headquarters in France. The sale will net GEC between pounds 1bn and pounds 1.3bn. Together with the pounds 300m GEC expects to raise from the disposals of other UK subsidiaries and the pounds 1.2bn already in the balance sheet, GEC will have a war chest of pounds 2.5bn.

The proceeds will be used to finance acquisitions to bolster GEC's defence electronics business Marconi but Mr Simpson did not rule out returning more capital to shareholders in if it could not find businesses that would produce a satisfactory return.

The City broadly welcomed yesterday's announcements, the first real fruits of the restructuring programme since Mr Simpson arrived from Lucas 15 months ago and set out his blueprint for the future of the business in July. Pre-tax profits for the first half were 5 per cent higher before exceptional items at pounds 442m, broadly in line with expectations. The shares rose 13.5p to 403.5p. Although GEC had been planning to sell all of its 50 per cent stake in GEC Alsthom, Mr Simpson described the partial flotation as "a perfectly satisfactory outcome". GEC and Alcatel will appoint an equal number of non-executive directors to the board and Mr Simpson said he did not expect the senior management of the company to alter.

The scale of the buy-back was limited by tax complications since share repurchases are classed as distributions for tax purposes and therefore liable to Advanced Corporation Tax (ACT). GEC has authority to repurchase up to pounds 1.6bn of its capital but had it gone for a bigger buy-back it would have been left with surplus ACT when the tax is abolished in April, 1999.

Mr Simpson would not be drawn on the likely targets for GEC's acquisition spree but analysts were sceptical of how easy it would be for the group to find suitable deals. Last month it lost out to British Aerospace in the bidding for Siemens Defence Electronics and for the time being the French have ruled out foreign participation in the privatisation of the defence electronics group Thomson CSF.

Despite this Mr Simpson was upbeat, predicting that the re-organisation of the French defence industry would prove the prelude to it joining in a wider European consolidation that would inevitably involve GEC.

The UK industrial businesses which GEC expects to sell include its semi- conductor subsidiary GPS, Marconi Instruments and its aircraft chartering business. A handful of international trading businesses are also being sold.

Mr Simpson said GEC was continuing to work with Siemens to "reposition" their joint telecoms venture GPT. Having at first seemed intent on selling its 60 per cent stake, GEC may now hold onto it and may even seek to buy out Siemens holding.

GEC will appoint a new chairman early in the new year to succeed Lord Prior who retires in March.

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Graduate Application Support Analyst

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Reach Volunteering: External Finance Trustee Needed!

Voluntary post, reasonable expenses reimbursed: Reach Volunteering: Would you ...

Christine McCleave: FP&A Analyst

£36,000 - £40,000: Christine McCleave: Are you looking for a new opportunity a...

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn