But the hugely convoluted privatisation process took yet another twist when the British company later revealed it was in talks with Alcatel Alsthom and Lagardere, the two giants of the French military-industrial complex, which have been allowed to proceed with their rival bids for Thomson- CSF.
In a statement GEC said that while it regretted the decision to reject its preliminary bid for Thomson-CSF, it had "received encouragement from the French government to enter into discussions" with the two preferred French bidders. "The process has already started," GEC continued.
Alcatel, the space and telecoms group bidding in conjunction with French plane maker Dassault, confirmed it was in contact with GEC, though Lagardere declined to comment.
Although widely expected, the refusal to allow GEC to go on to the final stage of bidding on its own was a public embarrassment for the French government, and Finance Minister Jean Arthuis, who are campaigning for a stronger "European defence identity".
It is the second time in four months it has turned down a potential foreign buyer for a part of the Thomson group. France was accused of discriminating against foreigners when it blocked plans by Lagardere to sell on Thomson's consumer electronics division to Daewoo Electronics of Korea after an outcry from French workers, industrialists and opposition politicians.
"The ceding of more than 50 per cent of Thomson-CSF capital to a foreign company would be contrary to vital national security interests," the French finance ministry said, admitting, for the first time, that GEC, led by George Simpson, managing director, had made an initial bid.
But the ministry went on to encourage the successful bidders to announce plans for partnerships and joint ventures with companies in other European countries. The French government hoped the Thomson sale would be the starting point for the restructuring of both the French and European military electronics industries.
GEC's move has been interpreted in France not as a real bid but as a dramatic means of expressing the British company's interest in such future deals and as a statement of concern that the European industry should not be reconstructed mostly as a series of national champions.
Lord Prior, GEC's chairman, stressed the need to bring together GEC-Marconi and Thomson-CSF to create a world leader in defence electronics following recent consolidation in the US defence industry.
"The fragmented structure of the European defence electronics industry will not sustain a strong competitive position in world markets in the next century," he said "This can be achieved only though an integrated electronics defence capability efficient in its operations and effective in the deployment of its resources."
GEC already has large shared interests with Thomson-CSF in the development of sonars and radars and has joint ventures with both the successful first- stage bidders.
British Aerospace, GEC's great rival, yesterday indicated its continued support for Lagardere, with whom BAe has a larger joint venture in missiles, in its bid for Thomson-CSF.
A final decision on who takes the 58.2 per cent of Thomson-CSF shares owned by the government, valued at pounds 1.3bn, must be made by 7 May.
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