WEBVTT 00:00:00.000 --> 00:00:02.960 Imagine for a second that you are looking at 00:00:02.960 --> 00:00:05.120 your retirement fund. Always a stressful thing 00:00:05.120 --> 00:00:08.300 to do. Right. But it is the mid -90s and you 00:00:08.300 --> 00:00:10.220 want something safe. You want something, you 00:00:10.220 --> 00:00:12.960 know, solid. So you put your money into a company 00:00:12.960 --> 00:00:15.740 that is basically, well, it's the backbone of 00:00:15.740 --> 00:00:18.160 the entire United Kingdom. We are talking about 00:00:18.160 --> 00:00:23.500 a company that employs a quarter of a million 00:00:23.500 --> 00:00:26.059 people. A quarter of a million. Yeah. A company 00:00:26.059 --> 00:00:29.219 that is literally too big to fail. Long before 00:00:29.219 --> 00:00:31.179 that was even, you know, a catchphrase people 00:00:31.179 --> 00:00:34.979 used. A company so financially secure, it was 00:00:34.979 --> 00:00:38.719 sitting on a cash pile of three billion pounds. 00:00:38.840 --> 00:00:40.700 Just sitting there. Just sitting there in the 00:00:40.700 --> 00:00:43.179 bank. Yeah. Completely liquid. Exactly. It was 00:00:43.179 --> 00:00:45.020 a fortress. I mean, they built the power grid. 00:00:45.100 --> 00:00:47.119 They built the trains. They built the radar systems 00:00:47.119 --> 00:00:49.659 that literally defended the country. You would 00:00:49.659 --> 00:00:51.179 sleep pretty well at night holding that stock. 00:00:51.359 --> 00:00:52.799 Oh, absolutely. It was the absolute definition 00:00:52.799 --> 00:00:55.090 of a blue chip stock. You bought it. You forgot 00:00:55.090 --> 00:00:57.409 about it. And you collected the dividends. But 00:00:57.409 --> 00:00:59.409 then, and this is where it gets crazy. Fast forward 00:00:59.409 --> 00:01:01.810 just five or six years, that three billion pound 00:01:01.810 --> 00:01:06.209 cash pile. Evaporated. Gone. And the share price 00:01:06.209 --> 00:01:09.209 hasn't just dipped. It has crashed by 99 percent. 00:01:09.750 --> 00:01:13.230 And this absolute titan of industry is effectively 00:01:13.230 --> 00:01:16.010 dead. It is one of the most spectacular and. 00:01:16.310 --> 00:01:18.549 Frankly, one of the fastest corporate suicides 00:01:18.549 --> 00:01:21.170 in history. So today we are doing a deep dive 00:01:21.170 --> 00:01:23.450 into the rise and fall of the British General 00:01:23.450 --> 00:01:27.189 Electric Company, GEC. And we are going to unpack 00:01:27.189 --> 00:01:30.090 how a company goes from being called a bank with 00:01:30.090 --> 00:01:33.290 a factory attached to becoming this massive cautionary 00:01:33.290 --> 00:01:36.090 tale about dotcom mania. We have a really great 00:01:36.090 --> 00:01:38.950 stack of sources for this deep dive today. biographies 00:01:38.950 --> 00:01:41.530 of the key CEOs, the actual financial reports 00:01:41.530 --> 00:01:44.450 from the crash, and some really fascinating retrospective 00:01:44.450 --> 00:01:46.650 analysis from the business press. Yeah, and reading 00:01:46.650 --> 00:01:48.189 through all of them, they paint a picture not 00:01:48.189 --> 00:01:50.170 just of bad luck, because there is always some 00:01:50.170 --> 00:01:52.709 bad luck in business, but of pure hubris. Before 00:01:52.709 --> 00:01:55.530 we go one inch further, though, let's unpack 00:01:55.530 --> 00:01:57.189 this immediately, because I can already hear 00:01:57.189 --> 00:01:59.189 the confusion from across the internet. We have 00:01:59.189 --> 00:02:00.950 to make a very crucial distinction right now. 00:02:01.090 --> 00:02:04.170 Right, yes. We're talking about GEC, the General 00:02:04.170 --> 00:02:06.530 Electric Company of the UK. We're not talking 00:02:06.530 --> 00:02:10.199 about General Electric or GE. So no Jack Welch 00:02:10.199 --> 00:02:12.680 in this story. No Jack Welch, no Thomas Edison. 00:02:12.900 --> 00:02:15.259 They're totally separate entities. Okay, good 00:02:15.259 --> 00:02:17.740 to clarify. Although, and this is actually a 00:02:17.740 --> 00:02:20.379 really key part of the story later on, the pressure 00:02:20.379 --> 00:02:22.860 to be more like the American GE, to have that 00:02:22.860 --> 00:02:25.719 flashy, high -growth stock price that Jack Welch 00:02:25.719 --> 00:02:28.819 was famous for, that is partly what drove the 00:02:28.819 --> 00:02:31.520 British GEC right off the cliff. I see. So it's 00:02:31.520 --> 00:02:35.780 a sort of strategy envy. Exactly. But yes, strictly 00:02:35.780 --> 00:02:38.539 distinct companies. Got it. So this is a uniquely 00:02:38.539 --> 00:02:41.280 British tragedy. And to understand the scale 00:02:41.280 --> 00:02:43.020 of the disaster, we really have to understand 00:02:43.020 --> 00:02:46.300 what was lost. Because GEC wasn't just some big 00:02:46.300 --> 00:02:48.460 conglomerate. It was a hundred -year -old institution. 00:02:49.039 --> 00:02:51.500 It really was an institution. And it didn't start 00:02:51.500 --> 00:02:54.469 as a giant either. If we rewind all the way back 00:02:54.469 --> 00:02:57.229 to the Victorian era, specifically around 1886, 00:02:57.509 --> 00:02:59.949 it starts with a shop. Just a normal shop. Just 00:02:59.949 --> 00:03:01.789 a small shop in London run by two immigrants, 00:03:02.189 --> 00:03:04.409 Gustav Binswanger, who later changed his name 00:03:04.409 --> 00:03:08.449 to Bing, and Hugo Hearst. And 1886 is a really 00:03:08.449 --> 00:03:11.409 interesting time for this. Because electricity 00:03:11.409 --> 00:03:15.210 isn't really a utility yet. It is this new, mysterious, 00:03:15.310 --> 00:03:19.009 magical thing. It is basically the AI boom or 00:03:19.009 --> 00:03:21.469 the Internet boom of the 19th century. Precisely. 00:03:21.469 --> 00:03:23.530 It was the Wild West. Everyone was trying to 00:03:23.530 --> 00:03:26.110 figure out how to monetize it. But here is what 00:03:26.110 --> 00:03:29.319 made Bing and Hearst so incredibly smart. While 00:03:29.319 --> 00:03:31.580 other people were in their labs trying to invent 00:03:31.580 --> 00:03:33.960 the perfect light bulb or the perfect generator. 00:03:34.139 --> 00:03:36.400 Trying to be the Steve Jobs of the 1880s. Right. 00:03:36.400 --> 00:03:38.719 While everyone else was doing that, these guys 00:03:38.719 --> 00:03:41.300 decided to be the Amazon of the 1880s. The everything 00:03:41.300 --> 00:03:44.360 store. Literally. Their actual motto was everything 00:03:44.360 --> 00:03:46.520 electrical. Yeah. They realized that this new 00:03:46.520 --> 00:03:49.080 industry was just messy and totally unorganized. 00:03:49.449 --> 00:03:52.090 So Hugo Hearst, who was this incredibly dynamic 00:03:52.090 --> 00:03:54.610 salesman, he traveled all over Europe finding 00:03:54.610 --> 00:03:56.710 the best gadgets. Like what kind of gadgets? 00:03:57.129 --> 00:03:59.710 Switches, electric bells, early telephones. And 00:03:59.710 --> 00:04:01.389 they took all these disparate parts and put them 00:04:01.389 --> 00:04:03.430 all in a single catalog. Which feels surprisingly 00:04:03.430 --> 00:04:06.250 modern. They standardized a fragmented supply 00:04:06.250 --> 00:04:09.370 chain. They absolutely did. In 1887, they published 00:04:09.370 --> 00:04:11.750 the first electrical catalog of its kind. So 00:04:11.750 --> 00:04:13.949 if you were wiring a new house or outfitting 00:04:13.949 --> 00:04:15.909 a factory, you didn't have to hunt down parts 00:04:15.909 --> 00:04:17.970 from 20 different inventors. You just went to 00:04:17.970 --> 00:04:23.430 GEC. And they moved fast, too. By 1888, they 00:04:23.430 --> 00:04:25.050 weren't just selling stuff over the counter. 00:04:25.170 --> 00:04:27.730 They were manufacturing it themselves. Vertically 00:04:27.730 --> 00:04:30.730 integrating. Yes. They opened a factory in Salford, 00:04:30.750 --> 00:04:32.569 making their own electric bells and telephones. 00:04:32.730 --> 00:04:34.689 And then they moved into lighting. Right. Which 00:04:34.689 --> 00:04:37.370 I assume was the absolute killer app of the 1890s. 00:04:37.370 --> 00:04:39.939 Huge. Lighting was everything. They invested 00:04:39.939 --> 00:04:42.819 in lamp manufacturing around 1893, which eventually 00:04:42.819 --> 00:04:46.019 evolved into Osram in 1909. Osram is still a 00:04:46.019 --> 00:04:48.839 massive name. Exactly. And lighting became their 00:04:48.839 --> 00:04:52.079 cash cow. It provided this steady, reliable stream 00:04:52.079 --> 00:04:55.040 of money that allowed them to expand into everything 00:04:55.040 --> 00:04:57.279 else. And then, as is often the case with these 00:04:57.279 --> 00:04:59.800 massive industrial giants, history intervenes. 00:04:59.800 --> 00:05:02.579 World War I breaks out. And war changes the equation 00:05:02.579 --> 00:05:05.439 entirely for a company like this. Suddenly, the 00:05:05.439 --> 00:05:07.920 government needs... Everything electrical immediately. 00:05:08.300 --> 00:05:11.339 They need radios, signal lamps, arc lamp carbons 00:05:11.339 --> 00:05:14.060 for searchlights to spot zeppelins. And GEC was 00:05:14.060 --> 00:05:16.800 perfectly positioned. They stepped up massively. 00:05:17.120 --> 00:05:21.139 By the time the war ended in 1918, GEC wasn't 00:05:21.139 --> 00:05:23.660 just a successful business anymore. It was considered 00:05:23.660 --> 00:05:26.339 a national asset. And that momentum carries them 00:05:26.339 --> 00:05:29.240 right into the huge infrastructure boom of the 00:05:29.240 --> 00:05:31.480 20s and 30s. They were everywhere in Britain. 00:05:31.600 --> 00:05:33.779 They helped build the national grid. They were 00:05:33.779 --> 00:05:35.879 practically married to the General Post Office. 00:05:36.019 --> 00:05:38.439 The GPO. The GPO, yeah, which ran the entire 00:05:38.439 --> 00:05:40.600 telephone system back then. If you made a phone 00:05:40.600 --> 00:05:44.279 call in Britain in the 1930s, chances are GEC 00:05:44.279 --> 00:05:46.639 built the exchange that actually connected your 00:05:46.639 --> 00:05:48.769 call. But here is where it gets really interesting 00:05:48.769 --> 00:05:51.129 to me. Looking at the sources, they emphasize 00:05:51.129 --> 00:05:53.850 that GAC wasn't just banging out widgets on an 00:05:53.850 --> 00:05:56.970 assembly line. They were doing serious high -level 00:05:56.970 --> 00:05:59.089 science. This is a crucial point to understand 00:05:59.089 --> 00:06:02.329 about their culture. In 1923, they opened the 00:06:02.329 --> 00:06:05.029 Hearst Research Center at Wembley. Named after 00:06:05.029 --> 00:06:07.730 Hugo Hearst. Yes. And this wasn't just a quality 00:06:07.730 --> 00:06:10.170 control lab. This was their version of Bell Labs. 00:06:10.370 --> 00:06:12.209 They were doing fundamental physics research. 00:06:12.449 --> 00:06:15.769 And that deep investment in science pays off 00:06:15.769 --> 00:06:18.250 in a way that... Literally saves the world in 00:06:18.250 --> 00:06:21.069 the 1940s. We are talking about the cavity magnetron. 00:06:21.230 --> 00:06:24.350 The cavity magnetron. Now, most people know that 00:06:24.350 --> 00:06:27.449 radar helped win World War II. But early radar 00:06:27.449 --> 00:06:30.209 was massive. You needed a huge ground station 00:06:30.209 --> 00:06:32.810 with giant antenna towers to make it work. Right, 00:06:32.870 --> 00:06:35.009 the chain home network along the coast. Exactly. 00:06:35.329 --> 00:06:37.470 It was great for spotting bombers coming over 00:06:37.470 --> 00:06:40.000 the English Channel, but... You could not put 00:06:40.000 --> 00:06:42.439 a radar system that big onto an airplane. Which 00:06:42.439 --> 00:06:44.779 is a major problem if you are trying to hunt 00:06:44.779 --> 00:06:46.920 U -boats in the middle of the Atlantic at night. 00:06:47.019 --> 00:06:49.740 You can't put a radio tower on a bomber. You 00:06:49.740 --> 00:06:52.720 need a compact microwave generator. That is what 00:06:52.720 --> 00:06:55.720 the cavity magnetron was. And GEC invented that. 00:06:55.920 --> 00:06:57.560 Well, it was actually developed by scientists 00:06:57.560 --> 00:07:00.540 at Birmingham University. Specifically John Randall 00:07:00.540 --> 00:07:03.060 and Harry Boot. But they were associated with 00:07:03.060 --> 00:07:06.550 GEC. GEC had the relationship of the sheer industrial 00:07:06.550 --> 00:07:09.550 muscle to take that delicate lab experiment and 00:07:09.550 --> 00:07:11.889 figure out how to mass produce it. So this device 00:07:11.889 --> 00:07:14.730 allowed them to shrink radar down to a size where 00:07:14.730 --> 00:07:16.990 it actually fits inside the nose of an aircraft? 00:07:17.350 --> 00:07:21.180 And that changed the entire war at sea. It allowed 00:07:21.180 --> 00:07:23.759 Allied planes to spot submarines surfing at night 00:07:23.759 --> 00:07:26.800 to recharge their batteries. It is widely cited 00:07:26.800 --> 00:07:29.279 by military historians as one of the absolutely 00:07:29.279 --> 00:07:32.180 decisive technologies of the war. That is incredible. 00:07:32.500 --> 00:07:34.920 And GEC was the one making it happen, alongside 00:07:34.920 --> 00:07:37.620 producing millions of radio valves and lamps 00:07:37.620 --> 00:07:41.139 for the war effort. So by 1945, GEC is a hero. 00:07:41.379 --> 00:07:44.000 It has the defense contracts. It has the national 00:07:44.000 --> 00:07:47.519 glory. But then the postwar slump hits. It is 00:07:47.519 --> 00:07:50.079 the classic peace dividend problem. Government 00:07:50.079 --> 00:07:52.220 spending drops off a cliff. And honestly, the 00:07:52.220 --> 00:07:54.660 company had gotten a bit flabby. Hugo Hearst 00:07:54.660 --> 00:07:57.779 died in 1943, and without his singular drive, 00:07:58.060 --> 00:08:00.459 the company sort of drifted. It was big, but 00:08:00.459 --> 00:08:02.899 it was inefficient. Very inefficient. Profits 00:08:02.899 --> 00:08:05.319 were sliding. They had all these different fiefdoms 00:08:05.319 --> 00:08:06.959 within the company that didn't talk to each other. 00:08:07.060 --> 00:08:08.980 They needed a shakeup, and boy, did they get 00:08:08.980 --> 00:08:11.779 one. Enter the man who would define GEC for the 00:08:11.779 --> 00:08:14.740 next 30 years, Arnold Weinstock. Lord Weinstock. 00:08:14.959 --> 00:08:17.339 Yeah. You really cannot tell the story of GEC 00:08:17.339 --> 00:08:20.100 without understanding him. He took over as managing 00:08:20.100 --> 00:08:22.660 director in 1963. Following a merger, right? 00:08:22.839 --> 00:08:27.240 Yes. GEC merged with his company, Radio and Allied 00:08:27.240 --> 00:08:31.180 Industries, and his management style was, well, 00:08:31.339 --> 00:08:33.659 let's call it ruthlessly efficient. He wasn't 00:08:33.659 --> 00:08:35.419 the type to walk the factory floor and shake 00:08:35.419 --> 00:08:38.460 hands with machinists, was he? Not at all. There 00:08:38.460 --> 00:08:40.559 are famous stories that he rarely even visited 00:08:40.559 --> 00:08:42.919 the factories. He ran this massive industrial 00:08:42.919 --> 00:08:46.159 empire from a relatively modest office in London. 00:08:46.320 --> 00:08:48.399 Just managing the numbers? He treated GEC like 00:08:48.399 --> 00:08:50.860 a giant balance sheet. He demanded these incredibly 00:08:50.860 --> 00:08:53.679 detailed financial reports from every single 00:08:53.679 --> 00:08:56.440 division manager. The famous Friday notes. Yes, 00:08:56.500 --> 00:08:59.279 the Friday notes. Every Friday, managers had 00:08:59.279 --> 00:09:01.720 to send their numbers down to London. Sales, 00:09:01.860 --> 00:09:04.419 inventory levels, profit margins, operational 00:09:04.419 --> 00:09:07.100 ratios. Weinstock would pour over them over the 00:09:07.100 --> 00:09:09.100 weekend. And if the numbers were bad? If your 00:09:09.100 --> 00:09:11.820 ratio of sales to stock was off by even a decimal 00:09:11.820 --> 00:09:14.120 point, you would get a terrifying note or a phone 00:09:14.120 --> 00:09:16.919 call on Monday morning asking exactly why. He 00:09:16.919 --> 00:09:19.159 sounds like the ultimate bean counter. But I 00:09:19.159 --> 00:09:21.340 guess in a good way. In the most effective way 00:09:21.340 --> 00:09:24.460 possible for that era. He hated waste. He hated 00:09:24.460 --> 00:09:27.379 debt above all else. And he saw that the British 00:09:27.379 --> 00:09:30.539 electrical industry as a whole was way too fragmented. 00:09:30.639 --> 00:09:32.539 There were too many small companies competing 00:09:32.539 --> 00:09:35.309 for the exact same government contracts. So he 00:09:35.309 --> 00:09:37.330 went on a merger spree? He rolled them all up. 00:09:37.389 --> 00:09:39.509 He bought Associated Electrical Industries, or 00:09:39.509 --> 00:09:43.370 AEI, in 1967. That was a huge, hostile takeover, 00:09:43.429 --> 00:09:45.730 wasn't it? It was vicious. And then he merged 00:09:45.730 --> 00:09:49.070 with English Electric in 1968. Suddenly, GEC 00:09:49.070 --> 00:09:51.309 essentially owns everything. The scale is hard 00:09:51.309 --> 00:09:53.289 to comprehend. They own the Marconi Company. 00:09:53.799 --> 00:09:55.919 They own train manufacturing. They own medical 00:09:55.919 --> 00:09:59.340 devices. They own avionics. By the 1980s, GEC 00:09:59.340 --> 00:10:01.820 is the largest private employer in the UK. It 00:10:01.820 --> 00:10:04.000 was an absolute beast. I'm looking at the portfolio 00:10:04.000 --> 00:10:07.419 list from the sources here. They owned Euro shipbuilders, 00:10:07.419 --> 00:10:09.879 making frigates for the Royal Navy. They owned 00:10:09.879 --> 00:10:12.340 Vickers Shipbuilding and Engineering. They owned 00:10:12.340 --> 00:10:15.259 Picker in the US, making MRI and CT scanners. 00:10:15.500 --> 00:10:17.600 They were even in a joint venture making the 00:10:17.600 --> 00:10:20.779 high -speed trains for Europe, GEC Alstom. And 00:10:20.779 --> 00:10:23.200 financially, how did this all look under Weinstock? 00:10:23.580 --> 00:10:26.820 Like a fortress. Because Weinstock was so incredibly 00:10:26.820 --> 00:10:30.200 conservative, he stockpiled cash. He treated 00:10:30.200 --> 00:10:32.399 the company's treasury like a giant rainy day 00:10:32.399 --> 00:10:34.840 fund. Which makes sense for a business that relies 00:10:34.840 --> 00:10:37.700 on massive, multi -year engineering contracts. 00:10:38.000 --> 00:10:41.399 You need a buffer. Exactly. By the mid -90s, 00:10:41.399 --> 00:10:43.779 GEC was making profits of a billion pounds a 00:10:43.779 --> 00:10:47.000 year. And they had cash reserves of three billion 00:10:47.000 --> 00:10:49.559 pounds. That is just staggering. Three billion 00:10:49.559 --> 00:10:52.379 pounds, fully liquid, just sitting there. It 00:10:52.379 --> 00:10:53.980 gave them immense stability. They could weather 00:10:53.980 --> 00:10:57.039 any recession, any strike, any downturn in government 00:10:57.039 --> 00:10:59.980 spending. But and here's the major turning point 00:10:59.980 --> 00:11:02.379 in our story to the city of London, to the exciting 00:11:02.379 --> 00:11:05.519 new financial world of the 1990s. Wine stock 00:11:05.519 --> 00:11:08.919 looked boring. Ah, yes. The 90s. The Internet 00:11:08.919 --> 00:11:11.340 is arriving. You have Netscape, Amazon, the dawn 00:11:11.340 --> 00:11:14.240 of the dotcom boom. And here's this giant industrial 00:11:14.240 --> 00:11:17.019 company sitting on a pile of cash, making old 00:11:17.019 --> 00:11:20.080 economy things like ships and power plants. Exactly. 00:11:20.279 --> 00:11:22.639 Financial analysts started. relentlessly criticizing 00:11:22.639 --> 00:11:24.740 wine stock they would ask why are you sitting 00:11:24.740 --> 00:11:26.899 on that cash do something with it be dynamic 00:11:26.899 --> 00:11:29.679 the market didn't want safety anymore the market 00:11:29.679 --> 00:11:32.779 wanted growth it wanted hype it wanted a story 00:11:33.259 --> 00:11:36.580 So Weinstock retires in 1996. And this is where 00:11:36.580 --> 00:11:39.039 the tragedy really kicks into high gear. The 00:11:39.039 --> 00:11:41.899 board brings in a new leadership team to basically 00:11:41.899 --> 00:11:44.539 modernize the company. George Simpson is the 00:11:44.539 --> 00:11:47.259 new CEO and John Mayo is the finance director. 00:11:47.480 --> 00:11:49.899 And the culture clash was instant, right? Immediate. 00:11:49.899 --> 00:11:52.759 Simpson and Mayo looked at GEC and they didn't 00:11:52.759 --> 00:11:54.779 see a defensive fortress. They saw a dinosaur. 00:11:55.340 --> 00:11:58.379 They wanted to transform GEC from a boring industrial 00:11:58.379 --> 00:12:02.639 conglomerate into a sexy, high -growth TMT company. 00:12:02.860 --> 00:12:05.100 TMT. Let's define that for the listeners. Technology, 00:12:05.320 --> 00:12:08.100 media, and telecoms. That was the magic buzzword 00:12:08.100 --> 00:12:10.259 sector of the late 90s. If you were classified 00:12:10.259 --> 00:12:12.559 as TMT, your stock price went straight to the 00:12:12.559 --> 00:12:15.059 moon. If you were classified as general engineering, 00:12:15.379 --> 00:12:17.820 your stock was flat. So they decide to pivot. 00:12:18.200 --> 00:12:20.100 But we aren't talking about a small course correction 00:12:20.100 --> 00:12:22.059 here. They didn't just open a software division. 00:12:22.279 --> 00:12:25.519 No. They decided to effectively liquidate the 00:12:25.519 --> 00:12:28.820 company's 100 -year heritage to gamble on a bubble. 00:12:28.940 --> 00:12:32.620 It really was a liquidation. In 1999, GEC did 00:12:32.620 --> 00:12:34.740 something that Weinstock would have considered 00:12:34.740 --> 00:12:37.379 absolute insanity. They sold the defense arm. 00:12:37.690 --> 00:12:40.370 The crown jewels of the business. Marconi Electronic 00:12:40.370 --> 00:12:43.409 Systems. This was the part of the company that 00:12:43.409 --> 00:12:45.590 had the steady government contracts, the long 00:12:45.590 --> 00:12:48.110 -term relationships, the guaranteed income. And 00:12:48.110 --> 00:12:52.269 they sold it to British Aerospace for 7 .7 billion 00:12:52.269 --> 00:12:54.809 pounds. Wow. Which, by the way, is what formed 00:12:54.809 --> 00:12:57.730 BAE Systems, which is still a massive defense 00:12:57.730 --> 00:13:00.309 contractor today. Okay, so let's pause for a 00:13:00.309 --> 00:13:02.250 second and look at the bank account. They have 00:13:02.250 --> 00:13:05.330 the 3 billion pound cash pile that Weinstock 00:13:05.330 --> 00:13:09.190 left them. They now have another 7 .7 billion 00:13:09.190 --> 00:13:11.809 from selling the defense business. They're sitting 00:13:11.809 --> 00:13:13.909 on over 10 billion pounds. They could have done 00:13:13.909 --> 00:13:15.549 anything with that. They could have bought a 00:13:15.549 --> 00:13:17.950 small country. They could have just paid out 00:13:17.950 --> 00:13:19.909 massive special dividends to their shareholders 00:13:19.909 --> 00:13:22.269 and retired as heroes. They absolutely could 00:13:22.269 --> 00:13:24.970 have. But they were deeply infected with dot 00:13:24.970 --> 00:13:28.210 -com fever. They wanted to be a pure play telecoms 00:13:28.210 --> 00:13:30.929 giant. They even completely renamed the company. 00:13:31.210 --> 00:13:34.159 GEC was dead. They officially became Marconi 00:13:34.159 --> 00:13:36.360 Plus. Right. And they took all that cash, the 00:13:36.360 --> 00:13:39.120 Weinstock legacy and the defense money, and they 00:13:39.120 --> 00:13:41.539 went shopping in America. But the timing. My 00:13:41.539 --> 00:13:44.159 God, the timing of this shopping spree. It is 00:13:44.159 --> 00:13:47.059 genuinely tragic. They went shopping at the absolute 00:13:47.059 --> 00:13:50.759 peak of the market frenzy, 1999 and 2000. When 00:13:50.759 --> 00:13:53.299 every tech valuation was completely detached 00:13:53.299 --> 00:13:55.990 from reality. Valuations were sky high. They 00:13:55.990 --> 00:13:59.289 bought a U .S. company called Reltech for 1 .3 00:13:59.289 --> 00:14:01.669 billion pounds. They bought another one called 00:14:01.669 --> 00:14:05.309 Four Systems for 2 .8 billion pounds. I was reading 00:14:05.309 --> 00:14:07.110 about that Four Systems deal in the sources. 00:14:07.269 --> 00:14:09.870 Didn't they pay a massive premium over the market 00:14:09.870 --> 00:14:12.309 price? It was an absurd premium. They paid something 00:14:12.309 --> 00:14:14.990 like 40 times earnings. They were aggressively 00:14:14.990 --> 00:14:17.889 bidding against other crazed buyers, throwing 00:14:17.889 --> 00:14:19.789 money at anything that made internet switches 00:14:19.789 --> 00:14:22.289 or fiber optics. Just desperate to buy growth. 00:14:22.549 --> 00:14:24.809 They burned through the entire cash pile in record 00:14:24.809 --> 00:14:27.139 time. And then, and this is the real kicker, 00:14:27.159 --> 00:14:29.620 they borrowed billions more to keep buying. So 00:14:29.620 --> 00:14:32.100 wait, they went from a company with zero debt 00:14:32.100 --> 00:14:34.639 and $3 billion in the bank to a company with 00:14:34.639 --> 00:14:37.639 billions in debt in what, 24 months? Basically, 00:14:37.639 --> 00:14:40.639 yes. All on the fundamental bet that the demand 00:14:40.639 --> 00:14:42.659 for internet infrastructure would just keep doubling 00:14:42.659 --> 00:14:44.940 forever. They honestly thought the party would 00:14:44.940 --> 00:14:47.759 never end. And, spoiler alert for anyone who 00:14:47.759 --> 00:14:49.620 wasn't paying attention to the stock market in 00:14:49.620 --> 00:14:54.440 2001, the party ended. The music completely stopped. 00:14:54.990 --> 00:14:58.029 The dot -com bubble burst. And the telecoms market 00:14:58.029 --> 00:15:00.750 didn't just slow down, it completely evaporated 00:15:00.750 --> 00:15:02.710 overnight. Companies suddenly stopped buying 00:15:02.710 --> 00:15:05.269 switches. Everyone realized there was massive 00:15:05.269 --> 00:15:07.870 overcapacity in the fiber optic networks. So 00:15:07.870 --> 00:15:11.269 now Marconi is stuck. They own these incredibly 00:15:11.269 --> 00:15:13.690 expensive U .S. companies that are suddenly worth 00:15:13.690 --> 00:15:16.029 a fraction of what they paid just a year ago. 00:15:16.190 --> 00:15:18.529 And they have massive debts to service. And crucially, 00:15:18.649 --> 00:15:21.129 because they sold the defense arm, they don't 00:15:21.129 --> 00:15:23.669 have that steady, boring income to pay the bills 00:15:23.669 --> 00:15:25.950 anymore. Exactly. They had sold the life raft 00:15:25.950 --> 00:15:28.570 to buy more weight for the sinking ship. It was 00:15:28.570 --> 00:15:31.330 a perfect storm of terrible strategic decisions. 00:15:31.549 --> 00:15:33.210 Let's talk about the share price, because the 00:15:33.210 --> 00:15:35.070 numbers are just hard to wrap your head around 00:15:35.070 --> 00:15:37.710 if you didn't live through it. It is visceral. 00:15:38.169 --> 00:15:40.529 At the peak of the mania, when everyone in the 00:15:40.529 --> 00:15:42.330 financial press thought Simpson and Mayo were 00:15:42.330 --> 00:15:45.009 absolute geniuses, Marconi shares were trading 00:15:45.009 --> 00:15:48.389 at 12 pounds and 50 pence. It was a darling of 00:15:48.389 --> 00:15:52.450 the FTSE 100. And after the crash. After they 00:15:52.450 --> 00:15:55.090 had to issue a massive profit warning in 2001. 00:15:55.529 --> 00:15:58.350 The shares fell to 4 pence. 4 pence. From 12 00:15:58.350 --> 00:16:02.210 pounds 50 down to 4 pence. That is a 99 .7 % 00:16:02.210 --> 00:16:05.139 drop. It is a total wipeout. It destroyed savings. 00:16:05.659 --> 00:16:07.980 Pension funds all over the UK took a massive 00:16:07.980 --> 00:16:10.529 hit. and Lord Weinstock, who is actually still 00:16:10.529 --> 00:16:13.149 alive to see this happen. He watched his personal 00:16:13.149 --> 00:16:16.070 family, stake in the company, drop from being 00:16:16.070 --> 00:16:18.990 worth 480 million pounds to about 2 million. 00:16:19.190 --> 00:16:22.190 Can you even imagine spending 30 years counting 00:16:22.190 --> 00:16:25.190 every penny, literally turning off lights in 00:16:25.190 --> 00:16:27.730 the office to save electricity, building this 00:16:27.730 --> 00:16:30.889 impregnable fortress, only to watch your successors 00:16:30.889 --> 00:16:33.750 burn it to the ground in two years? It is heartbreaking. 00:16:34.029 --> 00:16:36.429 It reportedly devastated him in his final years. 00:16:36.610 --> 00:16:38.919 Simpson and Mayo were... Forced out, obviously. 00:16:39.200 --> 00:16:41.659 But the damage was done. The company was on life 00:16:41.659 --> 00:16:43.500 support. How did they even keep the lights on 00:16:43.500 --> 00:16:45.360 at that point? They had to do a massive debt 00:16:45.360 --> 00:16:48.059 for equity swap in 2003, which basically meant 00:16:48.059 --> 00:16:49.980 handing ownership of the company over to the 00:16:49.980 --> 00:16:52.059 banks and the bondholders. The original shareholders 00:16:52.059 --> 00:16:54.519 lost almost everything. But the story doesn't 00:16:54.519 --> 00:16:56.759 quite end there, does it? There was still a pulse. 00:16:57.159 --> 00:16:59.860 They restructured into Marconi Corporation. They 00:16:59.860 --> 00:17:02.059 were slimmed down, sure. But they were still 00:17:02.059 --> 00:17:04.539 a major equipment supplier. There was a pulse. 00:17:05.079 --> 00:17:07.460 And they had one big hope left for survival. 00:17:07.799 --> 00:17:10.079 This brings us all the way back to their long 00:17:10.079 --> 00:17:12.500 history with the UK telephone system. Right, 00:17:12.579 --> 00:17:16.200 the GPO days. British Telecom, BT, was planning 00:17:16.200 --> 00:17:19.279 a massive, multi -billion pound upgrade to their 00:17:19.279 --> 00:17:23.200 network called the 21st Century Network, 21CN. 00:17:23.319 --> 00:17:25.980 This was a huge contract, upgrading the whole 00:17:25.980 --> 00:17:29.019 country to a modern digital network. Huge. And 00:17:29.019 --> 00:17:31.230 Marconi was the incumbent. They had been working 00:17:31.230 --> 00:17:33.069 with the British phone system since Queen Victoria 00:17:33.069 --> 00:17:35.410 was on the throne. They had the engineers. They 00:17:35.410 --> 00:17:37.549 knew the legacy network better than anyone. Everyone, 00:17:37.589 --> 00:17:39.769 including the city analysts, thought Marconi 00:17:39.769 --> 00:17:42.329 was an absolute shoe -in for that contract. It 00:17:42.329 --> 00:17:44.269 was their path to redemption. If they won that, 00:17:44.349 --> 00:17:46.569 they survived. But the world had changed. In 00:17:46.569 --> 00:17:49.710 2005, BT announced the winners of the contract. 00:17:50.049 --> 00:17:53.430 And Marconi got nothing. Nothing. Zero. The contracts 00:17:53.430 --> 00:17:55.289 went to Huawei and a few other international 00:17:55.289 --> 00:17:58.869 players. BT, their oldest partner. effectively 00:17:58.869 --> 00:18:01.349 fired them. Yeah. Oh, that has to sting. They 00:18:01.349 --> 00:18:03.630 looked at the new, slimmed down, financially 00:18:03.630 --> 00:18:06.769 unstable Marconi and decided they just weren't 00:18:06.769 --> 00:18:09.549 a safe bet anymore. The irony is crushing. The 00:18:09.549 --> 00:18:12.009 company that literally built the original exchanges 00:18:12.009 --> 00:18:15.089 gets completely shut out by BT. That was the 00:18:15.089 --> 00:18:17.769 final nail in the coffin. The share price collapsed 00:18:17.769 --> 00:18:20.450 all over again. The board realized they couldn't 00:18:20.450 --> 00:18:23.289 survive alone as an independent entity. So they 00:18:23.289 --> 00:18:26.049 chopped it up. In 2005, the bulk of the business. 00:18:26.539 --> 00:18:29.480 The Marconi name and the actual equipment manufacturing 00:18:29.480 --> 00:18:32.759 was sold to the Swedish company Ericsson for 00:18:32.759 --> 00:18:36.700 about 1 .2 billion pounds. Which is a tiny fraction 00:18:36.700 --> 00:18:39.240 of what they spent buying just one of those U 00:18:39.240 --> 00:18:42.000 .S. telecom companies a few years prior. A rounding 00:18:42.000 --> 00:18:44.140 error compared to what they spent. The leftover 00:18:44.140 --> 00:18:46.640 bits, which was mostly just a UK services business, 00:18:46.819 --> 00:18:50.200 were renamed Talent. And just like that, GEC, 00:18:50.420 --> 00:18:52.799 the General Electric Company, the backbone of 00:18:52.799 --> 00:18:56.190 Britain, was gone. folded voluntarily in 2006. 00:18:56.589 --> 00:18:58.589 It is incredible when you zoom out and look at 00:18:58.589 --> 00:19:01.369 the timeline. A hundred years to build an empire 00:19:01.369 --> 00:19:03.710 and really about five years of bad decisions 00:19:03.710 --> 00:19:06.089 to completely destroy it. It really highlights 00:19:06.089 --> 00:19:08.410 the immense danger of what you called strategy 00:19:08.410 --> 00:19:11.589 envy earlier. The leadership looked at Cisco 00:19:11.589 --> 00:19:14.250 and Microsoft and felt inadequate. They didn't 00:19:14.250 --> 00:19:16.829 value what they were actually good at. heavy 00:19:16.829 --> 00:19:20.049 engineering, defense, managing those long, slow 00:19:20.049 --> 00:19:22.509 government contracts. It is the curse of being 00:19:22.509 --> 00:19:24.930 boring. Yeah. Weinstock was criticized for it 00:19:24.930 --> 00:19:27.410 constantly. Why are you so boring? Why aren't 00:19:27.410 --> 00:19:30.450 you dynamic? And yet that boring strategy. having 00:19:30.450 --> 00:19:33.170 massive cash reserves, holding diverse assets. 00:19:33.390 --> 00:19:36.490 That was the only reason they survived the hyperinflation 00:19:36.490 --> 00:19:38.769 of the 70s and the deep recessions of the 80s. 00:19:38.789 --> 00:19:40.769 You know, we hear the word pivot all the time 00:19:40.769 --> 00:19:43.349 in business today. Startups pivot. Tech giants 00:19:43.349 --> 00:19:46.089 pivot. But a pivot implies keeping one foot firmly 00:19:46.089 --> 00:19:48.130 planted while you move the other. You change 00:19:48.130 --> 00:19:51.109 direction, but you keep your solid base. Exactly. 00:19:51.559 --> 00:19:54.299 GEC didn't pivot. They jumped. They took both 00:19:54.299 --> 00:19:56.759 feet completely off the ground by selling the 00:19:56.759 --> 00:19:59.380 defense arm just to leap onto a moving train 00:19:59.380 --> 00:20:01.799 that was heading straight for a cliff. It is 00:20:01.799 --> 00:20:04.259 amazing to think about the physical legacy they 00:20:04.259 --> 00:20:07.400 left behind, though. I mean, the cavity magnetron 00:20:07.400 --> 00:20:10.119 fundamentally changed the course of world history. 00:20:10.400 --> 00:20:13.740 The Osram bulbs lit up millions of homes. The 00:20:13.740 --> 00:20:15.640 heavy trains they built are probably still running 00:20:15.640 --> 00:20:17.759 on some branch lines today. The products were 00:20:17.759 --> 00:20:21.349 real. The engineering was world class. And that 00:20:21.349 --> 00:20:24.589 is the truly sad part of the story. The people 00:20:24.589 --> 00:20:26.609 working in the factories didn't suddenly get 00:20:26.609 --> 00:20:29.569 bad at their jobs in 1999. The corporate strategy 00:20:29.569 --> 00:20:32.369 failed them. Completely. It shows that no matter 00:20:32.369 --> 00:20:35.069 how good your underlying product is, bad financial 00:20:35.069 --> 00:20:37.750 timing and excessive debt can kill any company. 00:20:37.930 --> 00:20:40.349 So if we pull this all together for you listening 00:20:40.349 --> 00:20:43.720 at home. What is the big takeaway from all these 00:20:43.720 --> 00:20:46.599 sources, aside from the obvious lesson of don't 00:20:46.599 --> 00:20:49.019 buy tech stocks at 40 times earnings? I think 00:20:49.019 --> 00:20:51.059 it comes down to understanding your core DNA 00:20:51.059 --> 00:20:54.019 as a business. GEC was a conglomerate. It was 00:20:54.019 --> 00:20:56.539 essentially a hedge against risk. Right. By trying 00:20:56.539 --> 00:20:58.900 to turn it into a focused, highly volatile tech 00:20:58.900 --> 00:21:01.319 stock, they removed the very thing that made 00:21:01.319 --> 00:21:03.440 it special, which was its resilience. They tried 00:21:03.440 --> 00:21:05.369 to be something they weren't. And they paid the 00:21:05.369 --> 00:21:07.549 absolute ultimate price for it. It definitely 00:21:07.549 --> 00:21:09.890 makes me look at the boring companies in my own 00:21:09.890 --> 00:21:12.029 portfolio a little differently. You know, the 00:21:12.029 --> 00:21:14.809 utilities, the heavy manufacturers. Maybe being 00:21:14.809 --> 00:21:17.569 unsexy is a feature, not a bug. In the long run, 00:21:17.690 --> 00:21:22.190 boring usually wins. Or at least, boring survives 00:21:22.190 --> 00:21:24.480 to fight another day. Well, that brings us to 00:21:24.480 --> 00:21:27.220 the end of this deep dive into the rise and fall 00:21:27.220 --> 00:21:30.200 of GEC, from selling electric bells in a Victorian 00:21:30.200 --> 00:21:33.839 shop to a 10 billion pound collapse. Quite a 00:21:33.839 --> 00:21:36.440 ride. But here's a final thought for you to chew 00:21:36.440 --> 00:21:38.519 on as you go about your day. We are living in 00:21:38.519 --> 00:21:41.119 another era of massive hype right now. Absolutely. 00:21:41.279 --> 00:21:43.319 Every company right now, no matter what they 00:21:43.319 --> 00:21:45.680 actually make, is under immense pressure to have 00:21:45.680 --> 00:21:48.779 an AI strategy or a metaverse play. The pressure 00:21:48.779 --> 00:21:52.099 from analysts is identical to the late 90s. Pivot 00:21:52.099 --> 00:21:54.349 or die. That is what all the consultants are 00:21:54.349 --> 00:21:57.109 saying. But GEC serves as a pretty grim reminder. 00:21:57.349 --> 00:21:59.829 Does a legacy of 100 years of real innovation 00:21:59.829 --> 00:22:02.369 matter if you bet the farm on the wrong future? 00:22:02.529 --> 00:22:04.269 Just because you can pivot doesn't always mean 00:22:04.269 --> 00:22:07.089 you should. Sometimes the absolute smartest move 00:22:07.089 --> 00:22:09.269 is just standing still. Thanks for joining us 00:22:09.269 --> 00:22:12.009 on this deep dive. We will catch you on the next 00:22:12.009 --> 00:22:12.250 one.