Lockheed Martin Corp., which was rebuffed earlier this year in its $11 billion attempt to purchase Northrop Grumman Corp., may be looking overseas for a new partner.

According to a report in Britain's Sunday Telegraph, the giant, Bethesda-based defense and aerospace company is holding talks with General Electric Co. PLC, of London, to create a company valued at more than $34 billion.

GEC is Britain's second-largest defense contractor, with annual sales of $6 billion. It is not a part of Fairfield, Conn.-based General Electric Co.

While two U.S. aerospace analysts failed to give much credence to the report, neither would absolutely rule it out. "I am reluctant to place a high degree of inevitability on the report," said Byron K. Callan, who follows Lockheed Martin for Merrill Lynch Global Securities in New York.

Paul H. Nisbit, president of JSA Research Inc., in Newport, R.I., which concentrates on the aerospace industry, said there has been a flurry of defense/aerospace merger activity in Europe in recent weeks involving GEC, British Aerospace PLC and DASA, the defense and aerospace arm of DaimlerChrysler Corp. He said GEC indicated last week that it would like to be part of merger between British Aerospace and DASA.

"What may be happening," Nisbit said, "is that in order to persuade British Aerospace and DASA to go along with its plan, GEC has indicated that it could be part of a U.S. company. I think in the long run GEC will merge with another European company." Nisbit expressed his belief that if there was a combination between Lockheed Martin and GEC it would likely be an acquisition by the Montgomery County company. "Lockheed Martin is so big," he said. "It's a $28 billion company, and GEC has sales of about $6 billion."

James Fetig, a spokesman for Lockheed Martin, said the report was one of about a dozen coming out of Europe in recent weeks linking the company with a variety of possible mergers.

He declined to comment on the reports. "As a matter of policy, we don't comment on mergers or acquisitions," Fetig said. "We will not confirm or deny it."

Ben Brewerton, a spokesman in London for GEC, said: "We've made no secret of our interest in the U.S. market and have indicated we would be interested in linking with a company there. Lockheed is one of the options."

He added that GEC is "having a number of discussions, there is good momentum and a decision will be announced soon."

GEC shares have risen about 18 percent this month to a record high of $9.33 on speculation about a merger or buyout.

Lockheed Martin shares closed yesterday at $83.8125, down 31.25 cents.

Any combination of GEC and Lockheed would be a blow for British Aerospace, Europe's largest defense company, which has links with Lockheed Martin programs such as the Joint Strike Fighter plane.

GEC announced its intention last week to spin off its defense and aerospace businesses from other units in preparation for a merger move.

Analysts say that this has likely changed the nature of its talks and possibly the companies with which it's talking.

Speculation has been rife about Europe's aerospace industry, which is under pressure to consolidate to compete against U.S. giants such as Lockheed and the Boeing Co.

Pub Date: 12/29/98