Lord Simpson, GEC's chief executive, said the company had been in "intense" discussions for several months with a number of major players both in Europe and the United States. "These discussions have progressed well and GEC expects to make a decision on its strategic course soon," he added.
The announcement sent GEC shares 54p ahead to close at 505p as analysts sensed that a mega-merger between GEC and one or more rival defence companies was close at hand.
News of the discussions came as GEC announced 1,500 job losses in its telecommunications and industrial electronics divisions and reported a 21 per cent rise in operating profits for the half year to pounds 358m.
Lord Simpson would not be drawn on whether the defence consolidation would see it link up with a European partner, acquire another US defence company or go ahead with the long-mooted merger with British Aerospace.
But he appeared to downplay the prospects of a deal with the French, indicating that it could compromise its interests in the US, where GEC has recently completed the pounds 800m takeover of the defence contractor Tracor. Forty per cent of Marconi Electronic Systems' business is now with the Pentagon.
Referring to the Americans' "paranoia" about security and the difficult relations they had with the French on defence, he said: "Clearly if we went down the French route we would have to bear in mind the implications for our existing and future business in the US."
Lord Simpson also dismissed speculation that GEC might merge with France's Alcatel, which holds a 16 per cent stake in Thomson CSF.
GEC's cash pile stands at pounds 1.2bn and it has a further pounds 4bn of credit facilities, giving it enough firepower to launch a major acquisition. In the US, attention has focussed on Northrop Grumman, which was blocked from merging with Lockheed Martin earlier this year, Litton Industries and ITT Industries.
The job losses will fall mainly in Essex where Marconi Communications is closing a cable manufacturing plant at Dagenham and merging two telecoms business in Chelmsford, following its acquisition of Siemens' 40 per cent stake in GPT.