Marconi Details Restructuring

Execs earmark early May for Marconi's return to public trading – but they're bearish on sales

March 18, 2003

3 Min Read
Marconi Details Restructuring

Marconi plc has produced a final restructuring plan execs say could put it back on the public markets in May, despite reduced sales prospects (see Marconi Files Restructuring Plan).

The plan is a formal document filed with the U.K. court overseeing Marconi's creditor protection. It follows the basic tenets of a plans initially proferred by the company last August (see Marconi: The Deal Is Done), with some changes in the terms that govern how Marconi will meet its obligations.

The linchpin is a deal announced earlier this month (see Marconi Secures Financial Accord ), whereby Marconi's principal creditors, namely its bankers and bondholders, have agreed to a new set of terms for repayment of the company's humongous debt.

Details are inscrutable to the financially uninitiated, but the bottom line is that Marconi's debt will go from £3.9 billion (about US$6.10 billion) to £788 million (about $1.23 billion). According to a slide used by CEO Mike Parton on a conference call with analysts today, the scheme calls for the exchange of "syndicated loans, bond indebtedness, and other claims... pro rata, for cash, new debt, and new equity."

Sadly for shareholders, Marconi's plan won't change their share of the ultimate payback. When Marconi reemerges as Marconi Corp., which should happen once the formal plan is approved by creditors and the court, they'll still get just 0.5 percent of the equity.

Marconi hopes its plan will meet court and creditor approval by late May. At that point, the company will be free to emerge as Marconi Corp. and pursue a relisting on the London Stock Exchange, followed by a Nasdaq relaunch.

As part of its reemergence plan, Marconi's also intent on maintaining the pace of cost reductions, because it doesn't foresee an uptick in sales anytime soon.

In presenting the company's third-quarter financial report, also released today, execs said sales fell by about 10 percent last year and will probably fall another 5 percent this year, as carriers continue to delay projects and reduce capex worldwide (see Marconi Gives Quarterly Report).

Ultimately, Marconi's targeted breakeven sales level at the end of March 2004 is "below" £1.7 billion (about $2.65 billion). Sales over the past four quarters have totaled £2.08 billion (about $3.25 billion).

Another one of Marconi's main goals is to increase its cash position. To help things along, it still plans to sell its U.S.-based Outside Plant and Power subsidiary and its North American Access businesses, leaving its Broadband Routing and Switching division its key focus.

Analysts on today's call asked lots of questions about Marconi's market outlook. But the company won't say much beyond a few basics, namely, that it continues to focus on producing products for the carrier market, even though it sees growing opportunities in services as well (see Marconi Shakes Up CeBIT). "We just can't offer guidance beyond what we've already said," Parton said.

For now, the company seems intent on getting out of the woods. The rest will have to follow.

— Mary Jander, Senior Editor, Light Reading

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