Marconi forced to cut cash lifeline

Troubled telecoms equipment group Marconi is drawing up fresh survival plans, after poor trading forced it to cut a cash lifeline.

The firm's shares, which last year suffered one of the most notorious collapses in value in recent UK corporate history, dropped a further two thirds after the company revealed it had walked away from an agreement with banks.

Market conditions have continued to deteriorate, and the board believes that these uncertain conditions are likely to persist

Marconi statement

Marconi said it would draw up a revised business plan over the "next few weeks", and discuss with bank chiefs options for a fresh lending deal.

The firm blamed persistent weakness in the telecoms equipment market for its decision to ditch the existing scheme, part of a rescue plan developed after July's share price collapse forced strategy and boardroom shake-ups.

Inappropriate

"In the light of the group's revised view of the extended market downturn, it no longer believe that the refinancing proposal provides the group with an appropriate capital structure," Friday's statement said.

"Marconi has decided that it is unable to enter into the proposed new bank facility."

The company must do something very, very soon to prevent a complete collapse in its share price

Chavan Bhogaita, analyst Bear Stearns

The firm had negotiated two bank facilities, one for 4.5bn euros and a second, which has yet to be accessed, for 3bn euros.

While Marconi said it was on track to meet targets for reducing debt, and to bring operating costs below £900m by next March, it warned that weakness in its core markets was set to continue for at least another year.

"Market conditions have continued to deteriorate, and the board believes that these uncertain conditions are likely to persist... longer than previously anticipated," Friday's statement said.

The firm is set on 25 April to reveal its next trading update.

Shares plunge

Marconi's shares closed at 9.55 pence on Friday, down 47% on the day.

The share price had slumped as low as 5.5p early in the session.

City analysts predicted the shares would suffer further unless Marconi rapidly sorted out its finances.

"The failure to secure a (bank) facility at this stage has made the situation more urgent," said Chavan Bhogaita, analyst at Bear Stearns.

"The company must do something very, very soon to prevent a complete collapse in its share price."

Changing fortunes

Marconi shares reached a closing high of 1250p in September 2000, as investors applauded its strategy of shedding non-core businesses such as defence and focusing on the then-soaring telecoms markets.

But as confidence in telecoms waned, after the bursting of the dot.com bubble, the firm's shares began a slide accelerated in July last year by the bungled release of a profits warning.

Marconi has sought to ease its debt burden by selling businesses bought at bubble prices during the late 1990s, and, to cut operating costs, has announced the shedding of more than 20,000 jobs.

Many analysts believe telecoms equipment makers such as Marconi and Nortel face a prolonged downturn, as the industry continue to cope with a hangover of telecoms oversupply.

Analysts at Legal & General believe about 95% of fibre optic cables laid during the boom period remain unused.