Outlook: BAe/Marconi

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The Independent Online
CAN IT really be happening after all these years? British Aerospace- GEC is the original dog that didn't bark, the dream team that seemed destined never quite to make it to the alter. Like childhood sweethearts, they had become inseparable over the years, but somehow they couldn't get around to consummating the relationship. Many times they had stared dreamily into one another's eyes. But who should pay the dowry and who should be in charge and what would the Government have to say?

This was the match that everyone wanted but would never occur. Until today that is. This morning BAe will take Marconi as its lawfully wedded European defence partner at a small ceremony in the offices of SBC Warburg Dillon Read.

The jilted brides don't much like it. The Germans are muttering betrayal and the French are sucking their teeth at the fancy price BAe is paying. But the happy couple do not mind this. They think the Europeans will be reconciled to joining forces. Who knows, there may even be a menage a trois, or perhaps vier, before the year is out.

Had Lord Weinstock been allowed to buy BAe when it was on its knees at the start of 1993, he could have paid for it with not much more than the interest on GEC's infamous cash mountain. At the nadir of its fortunes, BAe was worth just pounds 450m.Today, it is valued at pounds 9bn and, although it is paying a full price for Marconi, its shareholders will be the senior partner in the merger with over 60 per cent of the equity.

The price may also be justified by the fact that this is a once in a lifetime opportunity for BAe. Marconi could just as easily have slipped from its grasp into the waiting arms of the Americans or French. With Marconi under its wing, BAe becomes a formidable force in the wider restructuring of Europe's defence industry.

Because this merger is largely about vertical, not horizontal integration, the scope for savings is less. But the reach and scale of BAe-Marconi should mean the opportunity to expand the business is greater. Condensing two prime contractors into one narrows the MoD's options, which may not always be good news for the taxpayer. But it can always rely on the Americans to ensure there is a natural competitor left on the battlefield.