Marconi unveils GBP4bn debt-for-equity restructuring

29 August 2002 -- Marconi plc has concluded the details of its financial restructuring, to be completed by end-January 2003, involving swapping GBP4bn of debt by giving 99.5% of the equity in the new Marconi Corporation to banks and bondholders and leaving just 0.5% for existing shareholders.

Aug 29th, 2002

29 August 2002 -- London-based telecoms equipment maker Marconi plc has concluded the details of its financial restructuring of both Marconi and its subsidiary Marconi Corporation plc, to be completed by end-January 2003 and aimed at preserving on-going business operations.

This follows negotiations since October 2001 between Marconi, a co-ordination committee of 28 syndicated banks (led by HSBC and Barclays) and an informal ad hoc committee of bondholders.

Marconi plc will be liquidated on a solvent basis. Control of the business will be handed over in a debt-for-equity swap of 99.5% of the issued share capital in the newly created holding company Marconi Corporation, distributed in proportion to the GBP2.2bn owed to the banks and the GBP1.8bn claimed by bondholders (for details, see www.marconi.com). Marconi expects to carry around GBP300m in net debt after the restructuring.

Existing Marconi shareholders will receive a stake of just 0.5%, plus warrants allowing them to purchase 5% of the issued share capital once the company's market capitalisation has risen to GBP1.5bn.

The UK's Financial Services Authority market regulator has allowed Marconi plc to proceed without a vote by shareholders which, claimed Marconi's board, would lead to creditors triggering a collapse of the company, yielding even lower returns for shareholders.

The former GEC (founded in 1886) sold its defence arm in 1999 for GBP7bn and spent billions on telecoms acquisitions (including USD6.6bn on the USA's Fore Systems Inc and Reltec Inc), renaming itself Marconi. The group's market value reached a GBP35bn peak in August 2000. But, in 2001, after the collapse of the telecoms market, both chief executive George Simpson (who in 1996 replaced Lord Weinstock, in charge since 1963) and deputy chief executive John Mayo were forced by shareholders to resign. Since then, non-core operations have been sold off (including Marconi's mobile communications defense unit to Italian aerospace and engineering group Finmeccanica for GBP400m) and thousands of jobs cut. Marconi's market value is now less than GBP48m.

The restructuring aims to capitalise on the group's "European market leadership in optical networks". Current chief executive Mike Parton said: "The financial restructuring will allow the group to emerge with a balance sheet that we believe is robust and appropriate to the size of our business...The level of cash and non-core assets retained by the group allows us to withstand a prolonged market downturn".

Two more US businesses would be put in the Marconi Capital division and eventually sold, Parton said. An outdoor communications unit and the US part of its Access division will be sold to pay back a USD300m bond.

Marconi Corp intends to apply for a new listing on the London Stock Exchange and to establish an American Depositary Receipt programme on NASDAQ.

On 4 August Marconi said that interim chairman Derek Bonham and finance director Steve Hare would step down after the debt-for-equity swap.

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