Britain: New Giant

Britain’s ruling Labor Party encourages corporate mergers on the theory that the country needs bigger and more efficient companies to compete in world markets. Taking the government at its word, Britain’s General Electric Co. Ltd. (no kin to American G.E.), and English Electric Co., which stand one-two in the country’s electrical field, obligingly prepared last week to join forces in a corporate merger that would be the biggest in British history.

Although the move had the government’s blessing, the merger between British G.E. and English Electric into Britain’s sixth largest company (combined sales: $2.2 billion) raised fears of monopoly both within and outside the electrical industry. The new firm would rank among the world’s five biggest electrical companies, accounting for 90% of Britain’s output of railway locomotives and up to half of the country’s turbo generators, switchgear and transformers. The potential of the new combine’s market domination prompted executives of Plessey Co. Ltd., a smaller electrical firm, to denounce the merger as a competition-stifling monolith.

Compatible Partner. Plessey had reason to be disturbed—if only because its managing director, John Clark, 42, had announced his own intention last month of taking over English Electric. But Clark reckoned without Arnold Weinstock, 44, British G.E.’s acquisitive boss, who made his company the industry leader by winning control of Associated Electrical Industries Ltd. in a bitter takeover battle last year. Weinstock heard the news of Clark’s designs on English Electric while vacationing at his Wiltshire farm, promptly began his own negotiations with the company.

Weinstock was a more than welcome suitor. Although English Electric has long been considered ripe for a merger, its chairman, Lord Nelson of Stafford, wanted no part of the $624 million takeover bid by Plessey Co. He argued that merging with Plessey would bring few improvements in efficiency because the two firms concentrated on different lines —Plessey on telecommunications and aerospace products, English Electric on appliances and heavy industrial equipment. British G.E., on the other hand, seemed like a compatible partner, especially since it had already been cooperating with English Electric in the manufacture of stoves at home and an air defense project in Saudi Arabia.

Plessey’s Clark could conceivably block the get-together by sweetening his offer to English Electric shareholders. But until terms of the agreement with British G.E. are made public, he will have obviously no idea about how much to raise the ante. An alternative for Clark would be to merge Plessey with another firm, one possibility being Hawker Siddeley Group Ltd., an aircraft and diesel-engine manufacturer. And he can always hope for a miracle, like the government’s withdrawing its approval of the proposed merger. In the U.S., the Justice Department would cast the dourest eye on a get-together between such large competitors. But Harold Wilson’s government, as the Sunday Times puts it, could hardly stamp out a merger that “represents a culmination of its policy for modernizing British industry.”