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ComputerWire: IT Industry Intelligence

Shareholders in Marconi Plc, which once had a stock market valuation of 35bn pounds ($53.5bn), will end up with only 0.5% of the equity under a humiliating debt-for-equity swap currently being finalized.

To rub salt into the wounds of investors in the telecoms equipment company, they will be given the option of digging into their own pockets to subscribe to up to 5% of the equity of the reorganized company after seeing the value of their existing shares fall from 1,200 pence ($17.70) in 2000 to a current level of 1.71 pence ($0.03).

Marconi has been trying to reach a deal with its bankers and bondholders since the end of last year and tried to take a tough stance, walking away from an agreement in March because it feared that it couldn't meet the interest charges. However, its bargaining position crumpled as the market deteriorated. In July it issued a trading update, warning that it recorded a 21.5% slump in core sales to 510m pounds ($795.6m) in its first quarter.

With the riches to rags story of Marconi attracting continued press speculation, the company said yesterday that it expects to have pro forma net debt of 300m pounds ($459m) following restructuring.

Once a cash-rich operation, Marconi ended with 4.3bn pounds ($6.6bn) in debt following an acquisition spree when it paid $4.5bn in cash for ATM-switch maker Fore Systems Inc and $2.1bn for Reltec, a manufacturer of last-mile access products. At the time, the company bragged that the deals would move it up into the same league as Cisco, Nortel and Lucent.

The bubble burst in July 2001 when the shares crashed after a bungled profits warning and chief executive George Simpson and his deputy John Mayo, the architects of the company's expansionist policy, departed the company.

With the debt burden removed, Marconi may well be the subject of a takeover approach as acquisitions offer the one way to increase revenue in a sector suffering from a scarcity of orders. After all that has happened, shareholders would welcome any move that would give them a short-term profit on their holdings.

© ComputerWire

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