GEC spends cash pile on pounds 2.8bn US Internet deal

GEC YESTERDAY unveiled its second blockbuster takeover in two months as it agreed to pay pounds 2.8bn for a US maker of Internet switching equipment.

The acquisition of FORE Systems of Pittsburgh follows last month's pounds 1.3bn purchase of another US telecoms equipment company, Reltec, and positions GEC strongly in this high-growth market sector.

This is GEC's second deal since it announced the sale of its Marconi defence arm to British Aerospace, and will use up the remainder of its famous cash mountain, leaving the group with net debt for the first time in three decades.

Lord Simpson, GEC chief executive, defended the price for FORE and said GEC was still looking for more, albeit smaller, deals in the telecoms industry. "It is a full price, but nobody is doing transactions at anything other than a full price in this sector," he said.

GEC is paying $4.5bn, or $4.2bn net of debt - a 43 per cent premium to FORE's closing price on Friday and an 80 per cent premium to the company's valuation before GEC's interest became known earlier this month.

But Lord Simpson pointed out that FORE was in one of the fastest-growing sectors of the market and was increasing revenues at 35 per cent a year.

This year the volume of Internet data traffic is forecast to outstrip voice traffic, and FORE equipment is used to switch an estimated two-thirds of global Internet traffic. FORE has a workforce of 2,000 and had net income of $51m last year on sales of $632m, up from $467m the previous year.

The deal will result in a goodwill charge of $3.8bn. But GEC said the impact of the acquisition on earnings before goodwill would be broadly neutral this year and positive thereafter.

Together with the Reltec acquisition, the FORE deal will increase sales of the new-look GEC to pounds 5.4bn. Lord Simpson's goal is to build GEC back up to the same size as it was before the Marconi demerger, with sales of pounds 6.7bn and a market capitalisation of pounds 15bn.

The aim is to combine FORE with GEC's existing Marconi Communications division, giving it a presence in three key equipment areas of transmission, access and switching.

Outlook, page 13

UK to vet BAe deal, page 14

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Are you passionate about sale...

Ashdown Group: Graduate Developer (Trainee) - City, London

£25000 per annum + benefits: Ashdown Group: A large financial services company...

Ashdown Group: Marketing Assistant - Financial Services Sector - London

£20400 per annum: Ashdown Group: An established and highly reputable organisat...

Recruitment Genius: Financial Services Graduate Training Scheme

£20000 - £100000 per annum: Recruitment Genius: We are a successful and establ...

Day In a Page

War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory
Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

Cook not the only one to be caught in The Oval mindwarp

Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

Can Benitez get the best out of Bale?

Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

Beijing witnesses new stage in the Jess and Kat rivalry

The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

Jeremy Corbyn interview: A shrewd operator desperate for power

His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

Isis executes Palmyra antiquities chief

Robert Fisk on the defender of the ancient city's past who was killed for protecting its future
Berlusconi's world of sleaze: The astonishing lifestyle once enjoyed by Italy's former PM

Berlusconi's world of sleaze

The astonishing lifestyle once enjoyed by Italy's former PM
Disney plans galactic domination with endless Star Wars spin-offs

Disney plans galactic domination with endless Star Wars spin-offs

Films and theme parks are just the beginning. Disney believes its control of the now decades-old franchise can bring in merchandise and marketing millions for years to come
Could the golden age of the gaming arcade ever be revived in the era of the Xbox?

Could gaming arcades be revived?

The days when coin-ops were the only way to play the latest video games are gone. But a small band of enthusiasts are keeping the button-pushing dream alive
Edinburgh Fringe 2015: The 'tampon tax' has inspired a new wave of female comedians to reclaim period jokes

Heard the one about menstruation?

Yes, if you have been at the Fringe, where period pieces are taking centre stage