GEC wants to settle link-up by Christmas

GEC HOPES to make an announcement about a strategic defence tie- up before Christmas, it emerged last night.

Speculation that the defence electronics giant led by Lord Simpson was on the point of unveiling a deal drove GEC shares 5 per cent higher yesterday to 556p - just 2p beneath their high for the year.

The company plans to hold a board meeting in the next three days to decide which option to pursue. It was thought GEC favoured a merger with a US defence contractor, possibly Northrop Grumman. But in the past fortnight it has made renewed attempts to clinch a merger with British Aerospace to create a UK defence giant.

Analysts say a tie-up with French defence electronics group Thomson CSF is also still a possibility.

A GEC spokesman refused to comment last night on the timing of any announcement or which of the options was most advanced. "There are still a number of options under consideration," he said.

But it is understood that GEC's preferred course would be to make an announcement this side of Christmas in order to end the frenzy of speculation that has built up since Lord Simpson said earlier this month that it would decide its strategic course "soon".

Given the complexity of the talks and need to resolve issues such as valuation, a deal may have to wait until the New Year.

One obstacle to a straightforward merger with BAe is that BAe is in advanced negotiations on merging with Daimler Chrysler Aerospace (Dasa). Furthermore, BAe is only interested in GEC's defence electronics business, Marconi: a way would have to be found to separate GEC's telecoms interests and its industrial and consumer electronics businesses, which include the fridge and washing-machine maker Hotpoint.

A three-way merger between BAe, Dasa and GEC remains an option, but this would dilute the German shareholding in the enlarged group to below 30 per cent, which may not be acceptable to the parent company, Daimler Chrysler.

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