Shakeup at Marconi may bring sell off

Shakeup at Marconi may bring sell off

UK telecommunication equipment maker Marconi Corporation will attempt to regroup this week after a difficult week which began with the company issuing a profit warning last Wednesday and ended on Friday with the resignation of the man scheduled to take over as chief executive in August.

"A good way out may be to seek a buyer or some partnership. But I think the best way forward for Marconi is to find someone to take them over," said Tony Lavender, an analyst with research firm Ovum Ltd.

Last Wednesday, Marconi said it would have to eliminate 4,000 jobs and announced an expected 50 per cent drop in its operating profit for the financial year ending March 31, 2002. The job cuts will come on top of the 4,000 job cuts already carried out by Marconi in April in an attempt to reorganize the company and bring about annual savings of over 200 million pounds (US$282.4 million) by 2003.

With the inclusion of the transfer of about 2,000 employees to Jabil Circuit in a outsourcing program between the two companies, Marconi expects to shed a total of 10,000 of its current 50,000 employees, Marconi said in a statement.

Trading of the company's (MONI.LON) shares was suspended for part of Wednesday on the London Stock Exchange. When trading resumed on Thursday, shares lost 50 per cent of their value.

The final blow for the week came on Friday, when it was announced that Deputy Chief Executive John Mayo had resigned.

Mayo, who was Marconi's chief financial officer (CFO), was set to replace George Simpson, who would be taking over the job of chairman from the retiring Roger Hurn, Marconi said in a statement on Friday. Simpson and Hurn will now remain in their jobs for the foreseeable future, Marconi said.

An explanation to Marconi's troubles was offered by Ovum's Lavender.

"I think the major mistakes were made before last Wednesday and Marconi is now coming clean with the market," he said.

"Marconi has obviously seen a massive slowing order book over the past 10 weeks, and they were overly optimistic last May. Certainly, Marconi is not in a good asset position," Lavender said.

It now looks like Marconi is ripe for a takeover; something which Simpson reportedly admitted to in an interview published Sunday by the UK newspaper The Sunday Telegraph. Simpson said he expected market consolidation to occur among network operators and then among equipment makers such as Marconi.

"I think we are going to see consolidation and in the short term our scale is going to be smaller than these other guys. There is a possibility there will be some movement and we would be likely to play some part in that. Clearly we are aware of the opportunity/risk of a takeover," Simpson was quoted as saying in the report.

Due to Marconi's position in Europe and thanks to its optical telecom equipment business, some analysts and various media report have pointed to Cisco Systems as a possible suitor. "Cisco could be one of the possible buyers but the market is now so soft that Cisco has quite a few options when it comes to buying companies," Ovum's Lavender said.

"In terms of buying Marconi, it depends on what part of Marconi you're looking at because clearly there is too much production development at the moment," Lavender said.

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