Outlook: What will GEC do with all the money?

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The Independent Online
Reuters rather stole GEC's thunder with its blockbuster buy-back but if George Simpson can successfully complete the reconstruction of the empire bequeathed by Lord Weinstock, then he will not mind too much. The strategy as set out is simplicity itself. Sell off the joint ventures in trains, planes and telecoms and reinvest the cash in acquisitions to turn Marconi into a world beating defence electronics business. Unfortunately, life is rarely that straightforward in the world of international defence manufacturing.

A year and a bit into the task, progress remains patchy. Mr Simpson inherited a business with a hopelessly inefficient balance sheet and a risk-averse culture. He has gone some way to addressing the latter handicap, notably with the streamlining of the management and the appointment as finance director of John Mayo from Zeneca, who can be relied upon to ginger things up.

But the net effect of yesterday's announcements, not withstanding the pounds 300m share buy-back, will be to leave the balance sheet groaning under more not less cash sitting on deposit at Barclays. The flotation of GEC Alsthom should bring in pounds 1bn while another pounds 300m is likely to be raised from the disposal of the rump of GEC's UK industrial businesses. Together with the pounds 1.2bn already on hand, Mr Simpson will have a war chest of some pounds 2.5bn ready to spend on acquisitions. If GEC goes the whole hog and loads up with debt, then its spending power would be even greater.

The problem with having that sort of money burning a hole in your back pocket is that the market tends to see you coming. Mr Simpson knows this. He declined to pay the asking price for Siemens Defence and as a result lost out to his erstwhile colleague, Sir Dick Evans of British Aerospace.

Mr Simpson was not sharing his thoughts yesterday as to where else the money might be invested. But France looks to be off the menu for a while given the Jospin government's determination to keep its defence restructuring an exclusively Gallic affair. Openings also look limited in the US, where GEC would love to do some deals but keeps running into the brick wall known as the Pentagon black programmes.

That leaves the option of handing more cash back to shareholders. GEC pleaded tax problems for the modest distribution announced yesterday. But in his previous life, Mr Mayo was a high-flying corporate financier with Warburgs. After Reuters example yesterday, he will not be short of an idea or two.