GEC Plc yesterday confirmed that it was in the midst of peace talks with Plessey Co Plc that could lead to the two companies doing a stand-off deal on GEC Plessey Telecommunications Ltd of the kind proposed by Plessey in May, when it approached GEC saying it was a buyer or a seller of 50% of the business – on condition that GEC dropped its plans to bid for Plessey for good (CI No 1,171). If agreement is reached, independent arbitrators will set a fair price for Plessey’s 50% of GEC Plessey – a figure of upwards of UKP750m is doing the rounds. The reason GEC may be ready to walk away from Plessey and not renew its bid is that there is still no sign of a satisfactory settlement of the protracted negotiations with the UK Ministry of Defence over preserving competition in the UK defence electronics market following a successful bid for Plessey. It is also likely that GEC’s controversial plans to give Siemens AG control of some of Plessey’s defence interests has met with a cool response in the corridors of power given the current West German stance on defence, which is regarded as less than sound in Whitehall. If GEC were to succeed in a deal to get full control of GEC Plessey, it is less certain that it would immediately hand over a 40% stake in the business to Siemens as originally planned: AT&T Co, L M Ericsson Telefon AB, Alcatel NV, Northern Telecom Ltd and even NEC Corp and Fujitsu Ltd would likely be keen to be given the opportunity to bid for a stake in GEC Plessey, and an auction would almost certainly result in a higher price for a minority shareholding than GEC would get in a straight deal with Siemens. What will Plessey do with the cash it would get from a sale? After reducing its presently rather high gearing, it is likely to pursue its interest in Personal Communications Networks, and a bid for Ferranti International Signal Plc with its Telepoint cordless public telephone licence is not out of the question. Plessey’s shares slumped 23 pence to 230p on the announcement, and some observers believe that GEC is simply trying to depress the Plessey share price ahead of a new bid.
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