The Marconi massacre
Electronic Telegraph (Filed: 09/09/2001)
(why Jabil shouldn't expect much from Marconi - Peter)
Debts of £4.4bn, share price in meltdown, a bloodbath in the boardroom - what next for the fallen telecoms giant? Mary Fagan reports
THERE is mayhem at Marconi. In less than a week the company, once the unrivalled giant of British industry, has ousted its chairman and chief executive, respectively Sir Roger Hurn and Lord Simpson of Dunkeld, and seen its value collapse to less than £1bn from £34bn a year ago.
Marconi's debt has hit £4.4bn; the banks that agreed a £1.9bn credit line as recently as May are screaming for the right to renegotiate for higher interest; and, last week, along with the second profits warning in as many months, Marconi announced an asset write-down of up to £3.5bn to reflect the collapse in value of American acquisitions.
Shareholders are up in arms over Simpson's potential payoff, which could be up to £1m. With the shares at 29.5p compared with last year's high of 785p there are serious doubts as to whether Marconi can survive. There is speculation that this once great group will fall to a bid from the likes of Cisco of the US.
It is hard to believe that this crisis-torn telecoms company was once the mighty GEC which, with Lord Weinstock at the helm, was built into a vast industrial conglomerate with a legendary pile of cash. Next week Marconi will be ejected from the FTSE100 Index, an event which many blue chip companies would see as the ultimate indignity.
If there is any optimism it is that Derek Bonham, a hardened boardroom veteran and Marconi's senior non-executive director, has temporarily taken on the chairman's role.
It was Bonham who led the coup last Monday afternoon in Marconi's plush Bruton Street headquarters in Mayfair. Backed by fellow non-executives such as Sir William Castell, chief executive of Amersham, it was Bonham who told Simpson that he had to go.
Bonham, who had been shocked when he was told the previous Friday of the extent of the company's financial mayhem, had decided enough was enough. His ensuing action was swift enough for some of the non-executives to have heard nothing of the change until they met on that fateful Monday. Hurn, said one observer, accepted that he too would have to leave Marconi if the group was to attempt a fresh start.
With Simpson stunned and departing for a "holiday" it was Bonham's task to tell a shell-shocked Mike Parton, then head of the group's telecoms products division, that he was chief executive.
Parton, a relative unknown, still seemed taken-aback last Friday by the pace of events and being thrust suddenly into the limelight. That did not stop him delivering the new Marconi mantra - that it will deliver on its action plan.
That action plan includes paring Marconi down to its core operations, selling a clutch of non-core businesses and cutting a further 2,000 jobs (which brings job losses for the year to almost 10,000). Parton's aim is to get debt down to between £2.7bn and £3.2bn by next March and to cut it further to £2.5bn after that. The asset sales are expected to raise about £500m, the dividend is gone and Parton is committed to slashing costs.
He says the core business will break even and generate cash in the second quarter, but adds: "We are not giving any guidance going forward."
It all sounds very neat, but nobody other than Marconi seems convinced. Standard & Poor's, the credit rating agency, added to Marconi's problems during the week by cutting its debt rating to junk status, a class that could deter investment funds.
Shareholders, analysts and investors alike are bewildered and aggrieved at the events of the past two months and their confidence will be hard to regain.
Marconi's profit warning at the beginning of July was bad enough in itself. The fact that it came after the company had suspended its shares for a full day's trading made it all the more painful. What made it even worse was that until the warning, Marconi had remained relatively upbeat in spite of a plethora of profit warnings elsewhere in the industry.
Even then, just days after the end of the first quarter of Marconi's year, Hurn and Simpson were predicting that it would break even in the first half. It took until last week for Marconi to admit that it would make a loss in the first half of £227m. Now people are asking why, if the company had the information (and the £227m loss was incurred in the three months to the end of June), did they keep silent until now?
Already shareholders have complained to the Financial Services Authority's listing authority about the timing of information coming out of Marconi. The FSA, which would not comment, is thought to be investigating the affair.
"They seem to have known a long time ago that the situation was worse than they said at the beginning of July. If they knew shortly after that first profit warning that they had more bad news, should it not have been published sooner? Shareholders will want some clarification on this," said one observer.
Another added: "There is still an issue around who is accountable - there are issues of corporate governance. Of course chief executives must fall on their swords if it all goes wrong. But there are a lot of other people who should also be put in the spotlight."
A third said: "There is a lot of confusion over the timing of it all - when they found out what was happening and when they said things. It is a complete shambles."
Bonham, who joined Marconi as a non-executive only a few months ago, has some sympathy with its critics. "The market is reacting with nervousness. A week is too short a time to gauge any longer-term view but analysts and shareholders are angry and just do not want to know," he said. "The anger is absolutely justified. Many of the analysts who have been recommending shares at various prices feel they have been let down."
The new chairman, who is also chairman of Cadbury Schweppes and Imperial Tobacco, knows that he will have his work cut out.
"It takes much longer to restore confidence and reputations thanit does to destroy them," said Bonham. "We are trying to get to first base and set the milestones out so that people know when and on what we will be reporting. We need to disentangle ourselves from the firefighting and get into implementing the agenda we have set."
According to Bonham, the most critical tasks are cost control and cash generation. He and the management team are also expected to tackle the problem of Marconi's communications, which the company will admit have not been good.
There is speculation that Bonham will take a robust view of the current board structure, and many expect changes in the line-up of non-executives, almost all of whom were Simpson appointees. Bonham, who has the support of Weinstock, is also expected to keep a vigilant eye on the Marconi management and next week he intends to set out more detailed internal targets and milestones for the executive team.
"We are in business and we intend to stay in business. I am going to do my damnedest to ensure that the executives deliver," he said.
It will not be an easy ride for Parton. Although Marconi insiders say he is tough, he is relatively unknown and untested in the City and some analysts and investors are asking why a more charismatic or experienced candidate was not given the job.
Bonham gives the critics short shrift. "Many companies have charismatic leaders and they all too often get their heads chopped off," he said. "What we want is good solid coal face people. Mike Parton has good links with customers and he knows the market and he knows the people. We have a plan and the people to implement that plan." |
