Breaking up is hard to do

In 1996 GEC comprised 160 companies in six divisions. To decide what to keep, Lord Simpson and strategy director Jack Fryer applied two criteria: was there scope for double-digit growth and could the business attain market leadership?

Distribution: This comprised a number of companies scattered worldwide in outposts of the old British Empire. It was clear these did not meet either criterion.

GPT: A 60/40 telecoms joint venture with Siemens. In a big growth market but uncertain whether it could gain leadership.

US Industrial companies: This included Picker, which produces medical equipment; Videojet, a maker of high speed industrial printers; and petrol pump maker Gilbarco. All market leaders but none in growth markets.

UK industrial manufacturers: A range of UK companies which generally failed both tests.

GEC Alsthom: An electrical engineering joint venture with Alcatel of France. It had good leadership potential, but little scope for growth

Defence electronics: Despite the decline in the defence market generally since the end of the Cold War parts of defence electronics were growing rapidly. The question was whether the division was big enough to be a leader.

It was decided to sell the distribution companies and the UK industrials, and to spin-off GEC Alsthom as a separate company, Alstom.

Having bought out Siemens’ stake in GPT, `we could see, with the right acquisitions, how to get into leadership’, says Fryer.

This left the big question of defence electronics. It had definite leadership possibilities but would have to expand to become a global competitor. GEC examined merger and acquisition options in the US and Europe before deciding to exit the business, which it agreed to sell to British Aerospace at the end of 1998.

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