A year in the death of Marconi
Sorry tale of once-great firm sums up the market By Peter Bale FT Investor, 13:02 BST Jul 4, 2002
LONDON (FT Investor) - Exactly a year ago Marconi dropped a bombshell which is still reverberating through the market and which foreshadowed a year of crisis for investors.
On July 4, 2001, with its many US shareholders unable to trade on the Independence Day holiday the company suspended its shares for the entire day and then announced a huge profit warning after hours.
It was a warning many people, except Marconi [MONI, News, Chart, Research] directors, had seen coming a mile off after competitors had repeatedly said they saw a downturn in the telecoms equipment market. Marconi, however, failed to see the tide racing in until it was underwater.
Those were the days
Before the suspension Marconi [MONI, News, Chart, Research] shares traded on July 3, 2001 at 245p a share. Today they are a risible 3.6p and probably worth less than nothing. The company is now in the control of bondholders and bankers, owed more than £4.3bn, who have first claim on its assets.
It is a company no longer run in the interests of shareholders - though investors may wonder if it ever was under former chief executive Lord Simpson and his finance sidekick John Mayo. See FT.com story on Mayo and his explanations
The story of Marconi is a story of the market itself - a two year slow-motion horror story of decline and destruction of wealth on a grand scale during which the FTSE 100 [1805550, News, Chart] has slid 33 per cent from a peak of 6,738 in March 2000 to 4,450 now.
On the day of Marconi's suspension a year ago the leading London index was 25 per cent higher than it is today.
All in the same boat
Marconi is so symbolic and so important because so many investors held it. From its days under Lord Weinstock as GEC it had been seen as a solid, must-have, blue chip investment. An essential part of any investor portfolio. Under Simpson it became a racy technology stock, riding a wave of acquisitions and giving Mum and Dad investors a chance to ride the tech boom. It peaked at more than £12 in late 2000.
Investors anxious about the chances of a British WorldCom [WCOME, News, Chart, Research] or Enron should realise that in a sense it has already happened. While no one has suggested fraud or accountancy wrongdoing at Marconi, the impact of the management decision-making and the resulting collapse in shareholder value is the same. Marconi shareholders - many of them employees, like those in Enron, have lost everything - investments, pensions and jobs.
Marconi has sacked thousands of workers over the past year.
But the collapse of Marconi is only the most graphic case of investor oblivion in the two years of inexorable market decline since the tech bubble started to lose air in March 2000.
Telecoms, media and technology
Vodafone [VOD, News, Chart, Research] [VOD, News, Chart, Research], probably the most widely held stock by ordinary investors and institutions alike, has fallen 80 percent from its peak two years ago - 380p to around 80p. BT Group [BTA, News, Chart, Research], another victim of management hubris and the bursting of the bubble, has fallen 77 per cent to 241p - maybe a little less if you include your MM02 [OOM, News, Chart, Research] shares in the mobile unit spun off from BT.
Reuters [RTR, News, Chart, Research] [RTRSY, News, Chart, Research], the news and data group popular with British and US investors since its flotation in the early 1980s has fallen 80 per cent from its peak in March 2000 of £16.20 to 324p.
One thousand pounds invested in Marconi shares would now be worth £14.68
Defensive stocks like BP [BPA, News, Chart, Research] have also been battered, though shareholders will at least have been able to hang on to the bulk of their capital. Two years ago it was 600p a share, now it is a creditable 534p - a loss of 11 percent and offset by a healthy stream of dividends from the oil company.
British American Tobacco [BATS, News, Chart, Research] was a mere 249p just as the tech boom burst in March 2000. It has been a more than safe haven for your money, rising 189 per cent to 720p. Had you switched out of Marconi into BAT the day before the Marconi suspension you might have had the moral dilemma of tobacco but saved some skin.
One thousand pounds invested in Marconi shares the day before the suspension on July 4 would now be worth £14.68. The same amount invested in BAT at the same time would be worth £1,340.
Lemmings move in
If that sounds depressing it is also worth remembering that almost for the entire year since the Marconi profit warning - the first one - and the long downward spiral to near-bankruptcy - the stock has been among the most-bought by individual investors each week. Having lost their shirts at the top of the market, many investors have lost even more on the day down, buying into a falling stock. See latest FT Investor Top of the Stocks.
The announcement from Marconi last month that its pending deal with bondholders and bankers would lead to a "very significant dilution in value for existing equity holders" was a marvellous piece of very English understatement. Code for "shareholders get nothing". See Marconi warns of major dilution
"Today my Marconi investment portfolio shrank to the proportions of a small coin purse" - an investor writes.
The only consolation, if any, is that you are not alone. Marconi may be only the most spectacular example but anyone holding a significant technology, media or telecoms stock over the past two to three years is in a very similar, leaky boat, postponing those dreams of early retirement and rethinking plans for private schools.
As long-suffering Marconi shareholder and employee, Dr Ruth Pottinger, wrote in a recent letter to FT Investor: "Today my Marconi investment portfolio shrank to the proportions of a small coin purse...However, if I can scrape together the bus fare I will attend the AGM; after all it is nearly a year since I visited the circus!" |
