The share-buying spree that shot GEC Siemens Plc’s holding in Plessey Co Plc to 29.99% – and the ease with which the shares were picked up at the 270 pence a share bid price, strongly suggest that Plessey has only the slimmest of chances of fighting off the bid, but that in no way diminishes the industrial arguments for Plessey shareholders to reject the bid. One could insert the adjective long-suffering in there, because Plessey holders have had a diet of disappointment for several years, and it is only the prospect of the bid that has set the Plessey share price moving. Plessey has been a dull and pedestrian company for years, but starting shortly before the first GEC bid some three years ago, Plessey has been energetically addressing its weaknesses and restructuring for faster growth. And if Plessey’s shareholders have suffered, so too have those of GEC, and the fact that GEC has finally shed its dull-as-ditchwater aura is ironically down to all those exciting joint ventures into which the company has entered. Ironic, because few British companies have a more dismal record in joint ventures than GEC – with Hitachi Ltd in televisions, with Fairchild Camera & Instrument in semiconductors, with Intel Corp, which granted GEC the UK second source rights to the original 8080 microprocessor: where are they now? The proposed joint venture with Philips NV, generally regarded as a bit of a pussycat when it comes to negotiation, that would have merged the two companies’ medical electronics businesses, looked like a marriage made in heaven – yet when it came to the crunch, the two couldn’t reach agreement on terms and the thing fell apart. What conceivable reason can there be to believe that GEC’s new rash of joint ventures – with General Electric Co, Compagnie Generale d’Electricite and Siemens AG will fare any better than all the ones that have failed in the past? Or is the GEC share price really paying the new ventures abeisance because investors believe that this time GEC has put so much business into joint ventures with such big partners that when the things fall apart, the foreign partners will simply move in and carve up GEC? Another joint venture that turned sour almost as soon as the ink was dry on the merger paper was of course the one that created GEC Plessey Telecommunications Holdings Ltd. Which highlights the other key reason why Plessey holders should reject the GEC bid. There have been several enthusiastic announcements from GEC Plessey over the past few months on business won in far-flung places like Moscow and Malaysia, on positive developments in the US market. But to what products and initiatives did these achievements relate? Why to Plessey’s pay-phones, to Plessey’s acquisition of Stromberg Carlson in the US, Plessey’s development of the ISDX private exchange. Perhaps there are unsung GEC Plessey achievements that can be traced back to GEC Telecommunications, but if so, they are not the ones the joint venture company chooses to highlight. In the past few years, Plessey has won a reputation for imaginative initiatives and innovative developments rare these days in British electronics companies, and the biggest fear over a GEC Siemens takeover of Plessey is that two of the world’s most risk averse electronic companies will plod through Plessey in the first few months after the takeover systematically closing down and abandoning all the innovations that don’t have a guaranteed short-term return. Even where GEC does have a genuine innovation – as for years it did in its GEC Computers business, as it did four years ago in its contactless Smart Cards, it proceeds so cautiously that the market has been parcelled out among more ambitious competitors before GEC is ready to make a big push for its own products, so that GEC Computers, which had the potential in the mid-1970s to have become if not another DEC, at least another Tandem Computers, is now well-nigh non-existent. Is GEC going to do any better in Smart Cards? Splendid, excellent The problem is that the UK electronic sector does need restructuring: combinati
ons that perm any two or three of Plessey, Racal Electronics Plc, STC Plc and Ferranti International Signal Plc – even a Marconi Electronics divested from the GEC megalith – are highly desirable. GEC is a splendid builder of turbines, and pace the Docklands Light Railway, an excellent builder of railway systems, and it has done well in the more boring end of the consumer durables business. It is unrivalled at paring manufacturing costs to the bone and reducing unproductive overheads to a minimum. But it is pathologically risk-averse, and in an industry that changes as rapidly as electronics, it isn’t that the biggest risks that generate the biggest rewards – there simply are no rewards unless big risks are taken. Plessey has been brave in taking those risks over the past four or five years and the rewards are beginning to come through. After all they have endured, it is asking a lot to ask Plessey’s shareholders to turn their backs on cash on the table and put their faith in Plessey’s promises, but for the future of the UK electronics industry, that is what they should do. They won’t, of course…
