Share price slump looms for Marconi

SHAREHOLDERS in Marconi face seeing the value of their shares slump dramatically under restructuring proposals for the stricken telecoms group. Marconi's share price has doubled in the past month and jumped 18% on Wednesday on hopes that the restructuring would be a success.

But Financial Mail understands that rescue plans by banks and bondholders would leave ordinary investors with shares worth less than a third of their current stock market value.

Banks and bondholders will meet early this week to discuss the plans, but no resolution is expected before Marconi's annual results, due on Thursday. Marconi's shares closed on Friday at just over 11p, valuing the telecoms company at £306m, but the restructuring is likely to value the stake of ordinary shareholders at between £50m and £100m.

The shares slumped to 5.82p a month ago, but recovered because of buying, mainly by small investors hopeful that a rescue would boost the share price.

If the restructuring goes ahead, Marconi's banks, headed by Barclays and HSBC, and bondholders - mainly US hedge funds - would control about 90% of the shares. Though Marconi has £1.4bn in cash, it has total debts of £4.26bn, leaving its future at the mercy of the banks and bondholders.

The proposal is to keep £850m cash, which has been ring-fenced to prevent Marconi using it, writing off £1.4bn of debt and lending Marconi £1bn under new terms. The remaining £1bn of debt would be swapped for shares in Marconi, with banks and bondholders offering existing shareholders between five and 10% of the shares.

Marconi's existing shareholders need to approve any restructuring, but because of the company's level of debt, the banks and bondholders could pull the plug on the business.

John Walter, an analyst with independent research firm Equity Investigator, said the recent rise in the share price was unjustified. 'People do not realise how heavily share prices would be affected if the restructuring comes off.'

There has been speculation over management changes, including the possible departure of chief executive Mike Parton, following the restructuring, but banks and bondholders are not thought to want wholesale board changes. At their peak two years ago, Marconi's shares fetched 1250p.