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Marconi Closes In on Zero Debt

Sells power and plant business for $375 million in cash that will be used to cut its debt to about $100 million

July 7, 2004

3 Min Read
Marconi Closes In on Zero Debt

Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) has sold off the last of its non-core activities, its Outside Plant & Power business, for $375 million in cash (see Marconi Sells Power Business).

The North American business, which provides equipment such as street cabinets, equipment racks, and power units to operators, counted a number of Tier 1 U.S. carriers among its customers, with Sprint Corp. (NYSE: FON) being one of its largest, according to a Marconi spokesman. The new owner is Emerson Electric Co., which will also take on pension and retirement liabilities worth a further $31 million.

Marconi will use the cash proceeds to cut yet more of its debt. The sale of its North American access equipment unit to Advanced Fibre Communications Inc. (AFC) (Nasdaq: AFCI) earlier this year helped to close off its short-term debt (see ... And Helps Marconi Cut Its Debt). Following the Emerson deal, Marconi will have just $104 million, or about £56 million, of its long-term debt left to pay down. When it came out of restructuring in May 2003, Marconi had £788 million of short- and long-term debt (see What's Next for Marconi?).

The sale announcement gave Marconi's share price a boost on the London Stock Exchange as it jumped 12.5 pence, nearly 2 percent, to 687 pence.

As with the sale of its access equipment business, Marconi has sold a business unit that was improving. The unit had sales of about £209 million ($387 million) in the year ended March 31, 2004, and an operating profit of £14 million ($26 million). Marconi spokesman David Beck says the unit was "on an upwards curve," and that allowed the company to get the sort of price it was looking for, at more than one times sales.

"The logic for having this business was greater when we were selling Sonet gear, but we haven't been in that market for about three years now. We didn't have to sell, and were only going to do so if we got a good price, which we have."

And Beck rejects the notion that the sale will cut off a pipeline into the big North American carriers, there being no history of telecom equipment sales linked to contracts won by the plant and power unit. "The procurement process is done in a completely different way," he notes, insisting that the sale of the unit will have no impact on Marconi's remaining lines of business.

Beck adds that there are no plans to sell any further parts of Marconi, and that the vendor is now in "a net cash positive position" that will be improved by the further reduction of its debt. Now it aims to become debt free by paying off the remaining chunk of its senior notes using its cash reserves, which are likely to be in the region of £300 million ($556 million) when Marconi provides a trading update next Thursday (July 15).

This all spells good news for the current management team, who are due some ripe bonuses as a result of the debt reductions and current capitalization (see Marconi Execs Collect on Turnaround). In addition, Marconi is securing lucrative new deals and even launching new products (see BT Renews $656M Marconi Deal, Marconi Scales Down Its Edge, Marconi Lands Telstra Deal, Marconi Softswitches With BT, Marconi Lands $33M Contract, and Belgacom Upgrades With Marconi).

But it's unlikely to do much for the humor of the former shareholders, many of whom lost their shirts when they were handed just 0.5 percent of the new equity when Marconi returned to the financial markets last year.

— Ray Le Maistre, International Editor, Boardwatch

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