BLUECHIP : GEC needs an extra spark

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The Independent Online
THE mood at GEC seems to be one of only mild disappointment after it was rebuffed by the French government in its attempt to bid for its French counterpart, Thomson-CSF, writes Richard Phillips.

A cold shoulder should hardly come as a surprise; what British government would allow a foreigner to buy up GEC? So it is unlikely that GEC will be taking its case to Brussels.

Instead, it has said it will talk to the two bidders the French have allowed to enter the ring: Lagardere and Alcatel, which is bidding with defence company Dassault Industrie. GEC's move comes as no surprise - and it can still play a strong hand and save the face of the French if it enters the game at a later stage.

But the latest news reignites some old concerns about the future direction of GEC under its new managing director, George Simpson, who took over from Lord Weinstock. Under Weinstock, GEC had been accused of having lost its way. Its commitment to complex joint ventures in areas such as defence were often themselves defensive in nature; the upside for the share- holder was not always clear.

Yet with this latest move, GEC remains wholeheartedly committed to entrenching itself ever further in the European defence industry. There will be winners and losers in this game, and GEC is already well placed to emerge as one of the former. But in the longer term, however, it has to be questioned whether defence offers more than limited opportunities for growth.

GEC director David Newlands said the prime aim in the current situation was to ensure that Marconi, the electronics defence business, had a strong future. Fair enough. But if it is just going to be more of the same, can investors feel confident of a business which will offer more than somewhat pedestrian growth?

Will it just be more of the same, or can GEC make progress elsewhere to restore a premium rating to its assorted collection of businesses?

It is imperative that GEC finds a partner for Marconi, if only to square up to the growing presence of the Americans. But Mr Simpson needs to unlock value elsewhere. There has been little evidence of this. While the shares have performed reasonably well over the past five years, there needs to be some conclusive evidence of more than just jam tomorrow. On this basis, they rate no better than a hold.