Optical/IP Networks

Marconi/Huawei Talk Reheated

Merger speculation surrounding troubled telecom equipment firm Marconi Corp. plc (Nasdaq: MRCIY; London: MONI) has given the vendor's share price a boost.

Reheated rumors of a potential bid for Marconi by Huawei Technologies Co. Ltd. late last week sent the U.K. firm's share price up 19 pence, nearly 7 percent on Friday, to 299.5 pence (US$5.31).

The stock opened even higher this morning, at 320 pence ($5.68), but quickly fell back to 299 pence when the expected bid, rumored to be 325 pence ($5.77) per share, failed to materialize as the market opened.

Marconi admitted last month that it has been involved in M&A discussions, and sources close to the company say the vendor's staff is expecting a change in ownership. (See Marconi Talks on Takeover Talks.)

Speculation that the Chinese giant might make a move for Marconi has been circulating since Marconi's biggest customer, BT Group plc (NYSE: BT; London: BTA), stunned the industry and money markets by excluding the British firm from its next-generation network plans -- news that nearly halved Marconi's valuation. (See BT Shuns Marconi for 21CN and Marconi in Turmoil.)

Despite Marconi's claim that staff morale and business prospects are good, most industry observers say BT's decision has left the vendor with little option but to find a partner if it is to survive as a mainstream supplier to major carrier customers. (See A Modest Emporium.)

Conversely, Huawei, which has aggressive growth plans in Europe, was chosen as a leading vendor partner for BT's optical transport and access network segments, and now it needs to deliver the goods. (See Huawei Picked for BT's 21CN and Huawei Plans to Triple Euro Business.)

Huawei could gain insight into BT's equipment requirements by acquiring Marconi's extensive knowledge of BT's legacy networks and operations. One senior BT executive, group technology officer Mick Reeve, recently told Light Reading's TV channel, LRTV, that the carrier would welcome a tieup between the two firms, which already have some product and marketing agreements in place. (See Marconi, Huawei Sign Agreement.)

The interview with Mick Reeve will be available on LRTV soon.

While many in the industry believe it's only a matter of time before Marconi becomes part of Huawei, at least one seasoned U.K. industry executive, who requested anonymity, suggests that the main holdup at present would be Marconi's close ties with the British army and security forces. He believes there would be a great deal of political opposition to a Chinese company taking control of Marconi lock, stock, and barrel, and that the telecom equipment part of the firm would need to be divorced from some other operations before a deal would be cleared.

Huawei declined to comment on such speculation, while Marconi says it's still holding talks with unnamed third parties, and that an announcement will be made to the London Stock Exchange if that situation changes.

On its own, Marconi has ambitions to be a major mover and shaker in the carrier softswitch market, which is now generating nearly $250 million in sales per quarter, according to Infonetics Research Inc. (See VOIP Equipment Revenue Up 18%.)

— Ray Le Maistre, International News Editor, Light Reading

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