This latest acquisition marks the culmination of a dizzying 12 months of wheeler-dealing. Since April last year Lord Simpson of Dunkeld (ennobled by Tony Blair) has splashed out more than pounds 6bn on acquisitions and sold what some see as GEC's birthright, the Marconi defence electronics business, to British Aerospace for pounds 7bn.
In the process, GEC's famous cash pile has shrunk to nothing and for the first time that anyone can remember GEC has net debt, something that rather pleases Lord Simpson. Such a state of affairs would have been unthinkable to his predecessor Lord Weinstock, who spent three decades building GEC into arguably the most powerful and certainly the richest business in Britain.
But Lord Simpson and his finance director, John Mayo, have spent a lot of time thinking the unthinkable, then going ahead and doing it. Once the Fore Systems and Marconi defence deals are complete, GEC will be virtually unrecognisable from the company Lord Simpson inherited in September 1996.
Three years ago GEC was dominated by defence contracting and power engineering, held together by a series of joint ventures that Lord Weinstock constructed largely to counter the threat of takeover. Consequently, it had a stock market rating and an earnings profile to match.
Today it is poised to become a high-technology growth stock. The Fore Systems acquisition and the pounds 1.3bn purchase of another US telecoms equipment maker, Reltec, in March, mean that half GEC's turnover of pounds 4.75bn will now derive from the telecoms sector, with a toehold in the three main markets - transmission, access and switching equipment. More significantly GEC will be strongly positioned to take advantage of the growth of the Internet.
The City has warmed to the Simpson-Mayo double act. Since the BAe-Marconi merger was announced in February, GEC shares have outperformed the market by 10 per cent. And, despite reports to the contrary, the two executives also seem to have warmed to one another. Although they arrived at GEC by different routes, they are both dealmakers by instinct. Lord Simpson's father wanted him to become a journalist and his mother had ambitions for him in the priesthood. He opted for being an accountant. Before GEC, he had already sold Leyland Trucks to DAF and Rover to BMW and laid the groundwork for the takeover of Lucas by Varity Corporation of the US.
Mayo came from corporate finance. He led the team at Warburgs that advised ICI on its defence against Lord Hanson and helped to engineer the demerger of Zeneca from ICI's chemicals business. As a reward he landed the job of finance director at Zeneca until he was lured away to GEC.
When Mayo joined a year after Lord Simpson it was obvious that serious corporate action was in store. But it is not just the shape of the group that has been turned inside out. The management structure and the culture of GEC have also been radically altered.
Anyone taking up the reins at GEC was bound to walk in the shadow of Lord Weinstock, who had been given the honorary title of chairman emeritus - a position from which, it was said, he could dispense the occasional piece of advice to his successor. Simpson paid lip service to the arrangement for as brief a period as was decent.
When GEC moved its headquarters from Stanhope Gate to nearby Bruton Street in London's Mayfair to cut costs, Simpson made sure there was no room for Lord Weinstock. The last thing he wanted around was Banquo's ghost.
Within six months, he had overhauled GEC's corporate structure and begun the cull of Weinstock supporters in the boardroom. In place of the rigid reporting lines, which involved individual business units detailing their financial performance to Stanhope Gate monthly, the management was restructured into five separate business groups.
The first board member to go was Malcolm Bates, the deputy managing director, quickly followed by the former Northern Ireland minister Sir Richard Needham and the finance director, David Newlands. Then went Weinstock stalwarts among the non-executives, Sebastian de Ferranti, William Rees-Mogg and Sarah Morrison.
New blood was infused. Nigel Stapleton came from Reed Elsevier, Bill Castell of Amersham Nycomed and Dame Lydia Dunn of HSBC in a bid to make the board more outward looking. Before Simpson arrived there were 13 executive directors on the 19-strong board. Today the board numbers 14 of which eight are non-executives, including the new chairman, Sir Roger Hurn, who replaced Lord Prior a year ago. Of the executive members only two - Peter Gershon and Michael Lester - have survived from the Weinstock era and both will decamp to BAe when the Marconi merger is complete.
Lord Weinstock is cautious about commenting on Simpson. He says: "He came with the backing of the major shareholders and with the intention of altering the direction of the company. He is doing that and the response judging from the share price is favourable.
"He has his own style and ideas and people and strategy which he is pursuing energetically. I am afraid the cashpile has gone. I tried to do something and he is trying to do something differently. It is a tremendous task he has undertaken in terms of the risks involved and we should see if he can achieve it."
Simpson had promised the City that by the end of his first year he would have a solution to the three strategic challenges facing GEC: what to do with its half-stake in the power engineering and transportation business Alsthom; whether to stay in telecoms; and, most important, finding a merger partner for the Marconi defence business.
He had a big incentive.His pay package, potentially worth pounds 10m over five years, depended on GEC's share price outperforming the market by 10 per cent and that, in turn, depended on giving the City good news. His first anniversary came and went without progress on any of the three fronts. But 1998 proved a turning point. In January, GEC reached agreement with Alcatel, its partner in Alsthom, for the pounds 4bn flotation of the business. The sale raised pounds 1bn for GEC and left it with a residual stake of under a quarter.
Then the deals began to flow. In April 1998 it paid pounds 800m for the US defence electronics business Tracor; and two months later it acquired Siemens' minority stake in their telecoms joint venture, GPT, for pounds 700m.
But GEC was no nearer finding a merger partner for its defence business. The logic of a domestic merger with BAe had always foundered on Simpson's insistence that it unlock shareholder value for GEC. What finally brought the two together was BAe's flirtation with Daimler-Chrysler Aerospace of Germany. There is little dispute that BAe has paid a full price - GEC shareholders will emerge with a 36 per cent share of the enlarged business plus pounds 2bn in cash. Nor is there any doubt that Tony Blair would have preferred to see GEC and BAe engineer a pan-European element into their merger.
But now that the UK has wrested back responsibility for vetting the merger from Brussels, most observers reckon it will escape without a referral to the Competition Commission. This would leave Simpson free to continue rebuilding GEC to the same level of sales and market capitalisation as before the BAe deal.
"We are still not huge in telecoms so we need to force the pace of organic growth while looking for other acquisition opportunities though probably not on the scale of the two deals we have done so far this year," he says.
Businesses such as Avery Berkel, which makes weighing scales, the Hotpoint washing machine joint venture General Domestic Appliances and the rump holding in Alsthom have been lumped together in a new division called GEC Capital and will be managed for value or sold. The other division, Marconi Systems, consists of three US businesses: Picker, which makes medical imaging systems, Gilbarco, the world's largest petrol pump manufacturer, and Videojet, which makes ink jet printers. They will be built into world- scale businesses or, again, sold.
"We know that Simpson is good at selling businesses," says one large GEC shareholder. "By the looks of it, he has also bought well. What we do not yet know is how good he is at running them."
If the share price keeps up its performance Simpson can scoop the jackpot. But there is a widespread assumption that Mayo will soon be looking for a business of his own to run. Once the deal-making is done it is anyone's guess as to how long GEC's latest Lord will stay on.
Market capitalisation: pounds 17.6bn (including Marconi defence)
Sales: pounds 4.75bn (excluding defence)
Chairman: Sir Roger Hurn
Chief executive: Lord Simpson
Finance Director: John Mayo
THE DEALS THAT TRANSFORMED GEC
January 1997: Sells Satchwell controls to Siebe for pounds 80m
December 1997: Announces pounds 4bn flotation of GEC-Alsthom
January 1998: Sells GEC Plessey Semiconductors to Mitel for pounds 137m
April 1998: Buys US defence company Tracor for pounds 800m
June 1998: Pays pounds 700m for Siemens' stake in GPT telecoms joint venture
January 1999: Sells Marconi defence business to British Aerospace for pounds 7.2bn
March 1999: Buys US telecoms equipment company Reltec for pounds 1.3bn
April 1999: Buys US Internet equipment supplier Fore Systems for pounds 2.8bnReuse content