Graham Warwick/WASHINGTON DC

GEC hopes that its $1.4 billion acquisition of Tracor will improve the UK company's access to US Department of Defense (DoD) business. The deal will make GEC-Marconi's North American arm the sixth largest US defence electronics contractor, more than doubling the unit's annual revenues to a combined $2.3 billion based on 1997 figures.

Cash-rich GEC has hinted at further US acquisitions, and managing director George Simpson has confirmed that his company is interested in Northrop Grumman, or any businesses that might be divested in pursuit of its merger with Lockheed Martin.

The Tracor deal needs Government approval as it involves foreign ownership of a DoD contractor, but neither company anticipates problems, and the deal is expected to close in June.

GEC has previously purchased US defence companies, including the former Hazeltine, Kearfott and Lear Siegler units making up most of its North American group. Anti-trust objections are not expected, as there is almost no overlap between the two operations.

GEC-Marconi believes that Tracor's information systems, electronic warfare and software engineering businesses will combine with its sensor and communications skills to establish the enlarged group as a leader in the growing "integrated digital battlefield" segment of the market.

Tracor accepted GEC's offer after deciding it wanted to become a company with $2 billion in sales by 2000. An 18-month study resulted in the decision to merge with a stronger company. GEC's offer was considered "best overall".

The US company had already grown rapidly over the past five years, adding around $1 billion to sales and making a dozen acquisitions. At the end of 1997, the group's sales reached $1.26 billion, with net profits of $44 million, although growth halted in the first quarter of this year. The company was 15th in the ranking of US defence companies.

GEC management has been under growing pressure to start spending its massive cash pile and had hinted that North America would be the target. Speculation had put other second-tier US defence companies such as ITT in the frame, although Litton had firmly ruled itself out. GEC still has cash for further sizeable acquisitions. Before the Tracor acquisition, it was holding over £1.2 billion ($2 billion) in cash, with another £2 billion expected from the disposal of its joint GEC Alsthom engineering business, as well as sizeable credit facilities.

The UK group stresses that the Tracor acquisition does not influence its approach to European consolidation. "This was not done in frustration or reaction to what's going on in Europe,"says GEC-Marconi North American group boss Mark Ronald. He adds that the acquisition is not about consolidation, but access to the US defence electronics market.

Source: Flight International