Imagine for a second that you are looking at
your retirement fund. Always a stressful thing
to do. Right. But it is the mid -90s and you
want something safe. You want something, you
know, solid. So you put your money into a company
that is basically, well, it's the backbone of
the entire United Kingdom. We are talking about
a company that employs a quarter of a million
people. A quarter of a million. Yeah. A company
that is literally too big to fail. Long before
that was even, you know, a catchphrase people
used. A company so financially secure, it was
sitting on a cash pile of three billion pounds.
Just sitting there. Just sitting there in the
bank. Yeah. Completely liquid. Exactly. It was
a fortress. I mean, they built the power grid.
They built the trains. They built the radar systems
that literally defended the country. You would
sleep pretty well at night holding that stock.
Oh, absolutely. It was the absolute definition
of a blue chip stock. You bought it. You forgot
about it. And you collected the dividends. But
then, and this is where it gets crazy. Fast forward
just five or six years, that three billion pound
cash pile. Evaporated. Gone. And the share price
hasn't just dipped. It has crashed by 99 percent.
And this absolute titan of industry is effectively
dead. It is one of the most spectacular and.
Frankly, one of the fastest corporate suicides
in history. So today we are doing a deep dive
into the rise and fall of the British General
Electric Company, GEC. And we are going to unpack
how a company goes from being called a bank with
a factory attached to becoming this massive cautionary
tale about dotcom mania. We have a really great
stack of sources for this deep dive today. biographies
of the key CEOs, the actual financial reports
from the crash, and some really fascinating retrospective
analysis from the business press. Yeah, and reading
through all of them, they paint a picture not
just of bad luck, because there is always some
bad luck in business, but of pure hubris. Before
we go one inch further, though, let's unpack
this immediately, because I can already hear
the confusion from across the internet. We have
to make a very crucial distinction right now.
Right, yes. We're talking about GEC, the General
Electric Company of the UK. We're not talking
about General Electric or GE. So no Jack Welch
in this story. No Jack Welch, no Thomas Edison.
They're totally separate entities. Okay, good
to clarify. Although, and this is actually a
really key part of the story later on, the pressure
to be more like the American GE, to have that
flashy, high -growth stock price that Jack Welch
was famous for, that is partly what drove the
British GEC right off the cliff. I see. So it's
a sort of strategy envy. Exactly. But yes, strictly
distinct companies. Got it. So this is a uniquely
British tragedy. And to understand the scale
of the disaster, we really have to understand
what was lost. Because GEC wasn't just some big
conglomerate. It was a hundred -year -old institution.
It really was an institution. And it didn't start
as a giant either. If we rewind all the way back
to the Victorian era, specifically around 1886,
it starts with a shop. Just a normal shop. Just
a small shop in London run by two immigrants,
Gustav Binswanger, who later changed his name
to Bing, and Hugo Hearst. And 1886 is a really
interesting time for this. Because electricity
isn't really a utility yet. It is this new, mysterious,
magical thing. It is basically the AI boom or
the Internet boom of the 19th century. Precisely.
It was the Wild West. Everyone was trying to
figure out how to monetize it. But here is what
made Bing and Hearst so incredibly smart. While
other people were in their labs trying to invent
the perfect light bulb or the perfect generator.
Trying to be the Steve Jobs of the 1880s. Right.
While everyone else was doing that, these guys
decided to be the Amazon of the 1880s. The everything
store. Literally. Their actual motto was everything
electrical. Yeah. They realized that this new
industry was just messy and totally unorganized.
So Hugo Hearst, who was this incredibly dynamic
salesman, he traveled all over Europe finding
the best gadgets. Like what kind of gadgets?
Switches, electric bells, early telephones. And
they took all these disparate parts and put them
all in a single catalog. Which feels surprisingly
modern. They standardized a fragmented supply
chain. They absolutely did. In 1887, they published
the first electrical catalog of its kind. So
if you were wiring a new house or outfitting
a factory, you didn't have to hunt down parts
from 20 different inventors. You just went to
GEC. And they moved fast, too. By 1888, they
weren't just selling stuff over the counter.
They were manufacturing it themselves. Vertically
integrating. Yes. They opened a factory in Salford,
making their own electric bells and telephones.
And then they moved into lighting. Right. Which
I assume was the absolute killer app of the 1890s.
Huge. Lighting was everything. They invested
in lamp manufacturing around 1893, which eventually
evolved into Osram in 1909. Osram is still a
massive name. Exactly. And lighting became their
cash cow. It provided this steady, reliable stream
of money that allowed them to expand into everything
else. And then, as is often the case with these
massive industrial giants, history intervenes.
World War I breaks out. And war changes the equation
entirely for a company like this. Suddenly, the
government needs... Everything electrical immediately.
They need radios, signal lamps, arc lamp carbons
for searchlights to spot zeppelins. And GEC was
perfectly positioned. They stepped up massively.
By the time the war ended in 1918, GEC wasn't
just a successful business anymore. It was considered
a national asset. And that momentum carries them
right into the huge infrastructure boom of the
20s and 30s. They were everywhere in Britain.
They helped build the national grid. They were
practically married to the General Post Office.
The GPO. The GPO, yeah, which ran the entire
telephone system back then. If you made a phone
call in Britain in the 1930s, chances are GEC
built the exchange that actually connected your
call. But here is where it gets really interesting
to me. Looking at the sources, they emphasize
that GAC wasn't just banging out widgets on an
assembly line. They were doing serious high -level
science. This is a crucial point to understand
about their culture. In 1923, they opened the
Hearst Research Center at Wembley. Named after
Hugo Hearst. Yes. And this wasn't just a quality
control lab. This was their version of Bell Labs.
They were doing fundamental physics research.
And that deep investment in science pays off
in a way that... Literally saves the world in
the 1940s. We are talking about the cavity magnetron.
The cavity magnetron. Now, most people know that
radar helped win World War II. But early radar
was massive. You needed a huge ground station
with giant antenna towers to make it work. Right,
the chain home network along the coast. Exactly.
It was great for spotting bombers coming over
the English Channel, but... You could not put
a radar system that big onto an airplane. Which
is a major problem if you are trying to hunt
U -boats in the middle of the Atlantic at night.
You can't put a radio tower on a bomber. You
need a compact microwave generator. That is what
the cavity magnetron was. And GEC invented that.
Well, it was actually developed by scientists
at Birmingham University. Specifically John Randall
and Harry Boot. But they were associated with
GEC. GEC had the relationship of the sheer industrial
muscle to take that delicate lab experiment and
figure out how to mass produce it. So this device
allowed them to shrink radar down to a size where
it actually fits inside the nose of an aircraft?
And that changed the entire war at sea. It allowed
Allied planes to spot submarines surfing at night
to recharge their batteries. It is widely cited
by military historians as one of the absolutely
decisive technologies of the war. That is incredible.
And GEC was the one making it happen, alongside
producing millions of radio valves and lamps
for the war effort. So by 1945, GEC is a hero.
It has the defense contracts. It has the national
glory. But then the postwar slump hits. It is
the classic peace dividend problem. Government
spending drops off a cliff. And honestly, the
company had gotten a bit flabby. Hugo Hearst
died in 1943, and without his singular drive,
the company sort of drifted. It was big, but
it was inefficient. Very inefficient. Profits
were sliding. They had all these different fiefdoms
within the company that didn't talk to each other.
They needed a shakeup, and boy, did they get
one. Enter the man who would define GEC for the
next 30 years, Arnold Weinstock. Lord Weinstock.
Yeah. You really cannot tell the story of GEC
without understanding him. He took over as managing
director in 1963. Following a merger, right?
Yes. GEC merged with his company, Radio and Allied
Industries, and his management style was, well,
let's call it ruthlessly efficient. He wasn't
the type to walk the factory floor and shake
hands with machinists, was he? Not at all. There
are famous stories that he rarely even visited
the factories. He ran this massive industrial
empire from a relatively modest office in London.
Just managing the numbers? He treated GEC like
a giant balance sheet. He demanded these incredibly
detailed financial reports from every single
division manager. The famous Friday notes. Yes,
the Friday notes. Every Friday, managers had
to send their numbers down to London. Sales,
inventory levels, profit margins, operational
ratios. Weinstock would pour over them over the
weekend. And if the numbers were bad? If your
ratio of sales to stock was off by even a decimal
point, you would get a terrifying note or a phone
call on Monday morning asking exactly why. He
sounds like the ultimate bean counter. But I
guess in a good way. In the most effective way
possible for that era. He hated waste. He hated
debt above all else. And he saw that the British
electrical industry as a whole was way too fragmented.
There were too many small companies competing
for the exact same government contracts. So he
went on a merger spree? He rolled them all up.
He bought Associated Electrical Industries, or
AEI, in 1967. That was a huge, hostile takeover,
wasn't it? It was vicious. And then he merged
with English Electric in 1968. Suddenly, GEC
essentially owns everything. The scale is hard
to comprehend. They own the Marconi Company.
They own train manufacturing. They own medical
devices. They own avionics. By the 1980s, GEC
is the largest private employer in the UK. It
was an absolute beast. I'm looking at the portfolio
list from the sources here. They owned Euro shipbuilders,
making frigates for the Royal Navy. They owned
Vickers Shipbuilding and Engineering. They owned
Picker in the US, making MRI and CT scanners.
They were even in a joint venture making the
high -speed trains for Europe, GEC Alstom. And
financially, how did this all look under Weinstock?
Like a fortress. Because Weinstock was so incredibly
conservative, he stockpiled cash. He treated
the company's treasury like a giant rainy day
fund. Which makes sense for a business that relies
on massive, multi -year engineering contracts.
You need a buffer. Exactly. By the mid -90s,
GEC was making profits of a billion pounds a
year. And they had cash reserves of three billion
pounds. That is just staggering. Three billion
pounds, fully liquid, just sitting there. It
gave them immense stability. They could weather
any recession, any strike, any downturn in government
spending. But and here's the major turning point
in our story to the city of London, to the exciting
new financial world of the 1990s. Wine stock
looked boring. Ah, yes. The 90s. The Internet
is arriving. You have Netscape, Amazon, the dawn
of the dotcom boom. And here's this giant industrial
company sitting on a pile of cash, making old
economy things like ships and power plants. Exactly.
Financial analysts started. relentlessly criticizing
wine stock they would ask why are you sitting
on that cash do something with it be dynamic
the market didn't want safety anymore the market
wanted growth it wanted hype it wanted a story
So Weinstock retires in 1996. And this is where
the tragedy really kicks into high gear. The
board brings in a new leadership team to basically
modernize the company. George Simpson is the
new CEO and John Mayo is the finance director.
And the culture clash was instant, right? Immediate.
Simpson and Mayo looked at GEC and they didn't
see a defensive fortress. They saw a dinosaur.
They wanted to transform GEC from a boring industrial
conglomerate into a sexy, high -growth TMT company.
TMT. Let's define that for the listeners. Technology,
media, and telecoms. That was the magic buzzword
sector of the late 90s. If you were classified
as TMT, your stock price went straight to the
moon. If you were classified as general engineering,
your stock was flat. So they decide to pivot.
But we aren't talking about a small course correction
here. They didn't just open a software division.
No. They decided to effectively liquidate the
company's 100 -year heritage to gamble on a bubble.
It really was a liquidation. In 1999, GEC did
something that Weinstock would have considered
absolute insanity. They sold the defense arm.
The crown jewels of the business. Marconi Electronic
Systems. This was the part of the company that
had the steady government contracts, the long
-term relationships, the guaranteed income. And
they sold it to British Aerospace for 7 .7 billion
pounds. Wow. Which, by the way, is what formed
BAE Systems, which is still a massive defense
contractor today. Okay, so let's pause for a
second and look at the bank account. They have
the 3 billion pound cash pile that Weinstock
left them. They now have another 7 .7 billion
from selling the defense business. They're sitting
on over 10 billion pounds. They could have done
anything with that. They could have bought a
small country. They could have just paid out
massive special dividends to their shareholders
and retired as heroes. They absolutely could
have. But they were deeply infected with dot
-com fever. They wanted to be a pure play telecoms
giant. They even completely renamed the company.
GEC was dead. They officially became Marconi
Plus. Right. And they took all that cash, the
Weinstock legacy and the defense money, and they
went shopping in America. But the timing. My
God, the timing of this shopping spree. It is
genuinely tragic. They went shopping at the absolute
peak of the market frenzy, 1999 and 2000. When
every tech valuation was completely detached
from reality. Valuations were sky high. They
bought a U .S. company called Reltech for 1 .3
billion pounds. They bought another one called
Four Systems for 2 .8 billion pounds. I was reading
about that Four Systems deal in the sources.
Didn't they pay a massive premium over the market
price? It was an absurd premium. They paid something
like 40 times earnings. They were aggressively
bidding against other crazed buyers, throwing
money at anything that made internet switches
or fiber optics. Just desperate to buy growth.
They burned through the entire cash pile in record
time. And then, and this is the real kicker,
they borrowed billions more to keep buying. So
wait, they went from a company with zero debt
and $3 billion in the bank to a company with
billions in debt in what, 24 months? Basically,
yes. All on the fundamental bet that the demand
for internet infrastructure would just keep doubling
forever. They honestly thought the party would
never end. And, spoiler alert for anyone who
wasn't paying attention to the stock market in
2001, the party ended. The music completely stopped.
The dot -com bubble burst. And the telecoms market
didn't just slow down, it completely evaporated
overnight. Companies suddenly stopped buying
switches. Everyone realized there was massive
overcapacity in the fiber optic networks. So
now Marconi is stuck. They own these incredibly
expensive U .S. companies that are suddenly worth
a fraction of what they paid just a year ago.
And they have massive debts to service. And crucially,
because they sold the defense arm, they don't
have that steady, boring income to pay the bills
anymore. Exactly. They had sold the life raft
to buy more weight for the sinking ship. It was
a perfect storm of terrible strategic decisions.
Let's talk about the share price, because the
numbers are just hard to wrap your head around
if you didn't live through it. It is visceral.
At the peak of the mania, when everyone in the
financial press thought Simpson and Mayo were
absolute geniuses, Marconi shares were trading
at 12 pounds and 50 pence. It was a darling of
the FTSE 100. And after the crash. After they
had to issue a massive profit warning in 2001.
The shares fell to 4 pence. 4 pence. From 12
pounds 50 down to 4 pence. That is a 99 .7 %
drop. It is a total wipeout. It destroyed savings.
Pension funds all over the UK took a massive
hit. and Lord Weinstock, who is actually still
alive to see this happen. He watched his personal
family, stake in the company, drop from being
worth 480 million pounds to about 2 million.
Can you even imagine spending 30 years counting
every penny, literally turning off lights in
the office to save electricity, building this
impregnable fortress, only to watch your successors
burn it to the ground in two years? It is heartbreaking.
It reportedly devastated him in his final years.
Simpson and Mayo were... Forced out, obviously.
But the damage was done. The company was on life
support. How did they even keep the lights on
at that point? They had to do a massive debt
for equity swap in 2003, which basically meant
handing ownership of the company over to the
banks and the bondholders. The original shareholders
lost almost everything. But the story doesn't
quite end there, does it? There was still a pulse.
They restructured into Marconi Corporation. They
were slimmed down, sure. But they were still
a major equipment supplier. There was a pulse.
And they had one big hope left for survival.
This brings us all the way back to their long
history with the UK telephone system. Right,
the GPO days. British Telecom, BT, was planning
a massive, multi -billion pound upgrade to their
network called the 21st Century Network, 21CN.
This was a huge contract, upgrading the whole
country to a modern digital network. Huge. And
Marconi was the incumbent. They had been working
with the British phone system since Queen Victoria
was on the throne. They had the engineers. They
knew the legacy network better than anyone. Everyone,
including the city analysts, thought Marconi
was an absolute shoe -in for that contract. It
was their path to redemption. If they won that,
they survived. But the world had changed. In
2005, BT announced the winners of the contract.
And Marconi got nothing. Nothing. Zero. The contracts
went to Huawei and a few other international
players. BT, their oldest partner. effectively
fired them. Yeah. Oh, that has to sting. They
looked at the new, slimmed down, financially
unstable Marconi and decided they just weren't
a safe bet anymore. The irony is crushing. The
company that literally built the original exchanges
gets completely shut out by BT. That was the
final nail in the coffin. The share price collapsed
all over again. The board realized they couldn't
survive alone as an independent entity. So they
chopped it up. In 2005, the bulk of the business.
The Marconi name and the actual equipment manufacturing
was sold to the Swedish company Ericsson for
about 1 .2 billion pounds. Which is a tiny fraction
of what they spent buying just one of those U
.S. telecom companies a few years prior. A rounding
error compared to what they spent. The leftover
bits, which was mostly just a UK services business,
were renamed Talent. And just like that, GEC,
the General Electric Company, the backbone of
Britain, was gone. folded voluntarily in 2006.
It is incredible when you zoom out and look at
the timeline. A hundred years to build an empire
and really about five years of bad decisions
to completely destroy it. It really highlights
the immense danger of what you called strategy
envy earlier. The leadership looked at Cisco
and Microsoft and felt inadequate. They didn't
value what they were actually good at. heavy
engineering, defense, managing those long, slow
government contracts. It is the curse of being
boring. Yeah. Weinstock was criticized for it
constantly. Why are you so boring? Why aren't
you dynamic? And yet that boring strategy. having
massive cash reserves, holding diverse assets.
That was the only reason they survived the hyperinflation
of the 70s and the deep recessions of the 80s.
You know, we hear the word pivot all the time
in business today. Startups pivot. Tech giants
pivot. But a pivot implies keeping one foot firmly
planted while you move the other. You change
direction, but you keep your solid base. Exactly.
GEC didn't pivot. They jumped. They took both
feet completely off the ground by selling the
defense arm just to leap onto a moving train
that was heading straight for a cliff. It is
amazing to think about the physical legacy they
left behind, though. I mean, the cavity magnetron
fundamentally changed the course of world history.
The Osram bulbs lit up millions of homes. The
heavy trains they built are probably still running
on some branch lines today. The products were
real. The engineering was world class. And that
is the truly sad part of the story. The people
working in the factories didn't suddenly get
bad at their jobs in 1999. The corporate strategy
failed them. Completely. It shows that no matter
how good your underlying product is, bad financial
timing and excessive debt can kill any company.
So if we pull this all together for you listening
at home. What is the big takeaway from all these
sources, aside from the obvious lesson of don't
buy tech stocks at 40 times earnings? I think
it comes down to understanding your core DNA
as a business. GEC was a conglomerate. It was
essentially a hedge against risk. Right. By trying
to turn it into a focused, highly volatile tech
stock, they removed the very thing that made
it special, which was its resilience. They tried
to be something they weren't. And they paid the
absolute ultimate price for it. It definitely
makes me look at the boring companies in my own
portfolio a little differently. You know, the
utilities, the heavy manufacturers. Maybe being
unsexy is a feature, not a bug. In the long run,
boring usually wins. Or at least, boring survives
to fight another day. Well, that brings us to
the end of this deep dive into the rise and fall
of GEC, from selling electric bells in a Victorian
shop to a 10 billion pound collapse. Quite a
ride. But here's a final thought for you to chew
on as you go about your day. We are living in
another era of massive hype right now. Absolutely.
Every company right now, no matter what they
actually make, is under immense pressure to have
an AI strategy or a metaverse play. The pressure
from analysts is identical to the late 90s. Pivot
or die. That is what all the consultants are
saying. But GEC serves as a pretty grim reminder.
Does a legacy of 100 years of real innovation
matter if you bet the farm on the wrong future?
Just because you can pivot doesn't always mean
you should. Sometimes the absolute smartest move
is just standing still. Thanks for joining us
on this deep dive. We will catch you on the next
one.