GEC will go ahead with a merger of its satellite operation Matra Marconi Space with those of Germany's DaimlerChrysler Aerospace (Dasa), France's Lagardere SCA and Italy's Finmeccanica.

The tie-up is said to be worth almost £2bn ($3.2bn) and will create the world's third largest satellite company. The deal was originally announced in October but was put on hold when rumours surfaced of a possible merger between GEC and British Aerospace (BAe).

GEC and Finmeccanica have also separately announced they are to form a new joint venture, Alenia Marconi Systems, uniting their operations in ground, naval and missile systems and air traffic control.

This will create one of the three leading ground and naval radar suppliers in the world and the biggest supplier of missile systems outside the US. The company would have annual turnover of £1bn.

European consolidation

The deals are major step towards the long-anticipated integration in the European defence and aerospace industries and will fuel ongoing rumours that GEC will take part in a bigger defence merger with BAe, Dasa and possibly France's Aerospatiale.

GEC launches missile merger

It is believed talks have been held over recent months among Europe's biggest defence and aerospace companies to form a mega-alliance to rival US defence giants such as Lockheed Martin. BAe and Dasa are said to be close to a merger agreement.

On Tuesday, GEC announced it was splitting its defence and engineering businesses to pave the way for defence link-ups.

In a statement issued in Munich, GEC, Dasa, and Lagardere said the merger of their space interests would become operational during 1999, once final agreement had been reached and the deal approved by the EU.

The deal will unite Lagardere and GEC's jointly-owned Matra Marconi Space, Dasa's Raumfahrt Infrastruktur and Dornier Satellitensystem and Alenia Spazio.