£1bn rights issue could answer Marconi mayday

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Marconi, once the great hope of the British telecommunications industry and now struggling for survival, is considering launching a huge rights issue.

Mike Parton, the company's recently appointed chief executive, is understood to have flagged the possibility of issuing new shares in a series of briefings with the City over the last month.

A source close to the company said that a rights issue of up to £1bn was one plan under discussion to help reduce the company's £4.3bn debt burden.

Mr Parton has pledged to cut Marconi's borrowings to between £2.7bn and £3.2bn by March, but if he were to exceed that target, efforts to restore a following in the City would be boosted.

Marconi refused to comment, but it is understood that as yet no time frame has been put on a rights issue. Instead, the plans are pegged on Marconi's share price. On Friday the company's shares closed at 42.5p, considered too low for a successful offering. City analysts said that the price needed to rise to at least 80p before the market would stomach more shares.

"It is a decision that depends almost entirely on the Marconi share price," said one analyst. "I think the City has now got used to the idea that the company isn't going to go bust. If a rights issue is pulled off at the right time, it will offer the stock the sort of protection it so badly needs."

Marconi's share price has caused many headaches in the City this year. Widely seen as a solid bet at the beginning of 2001, the company's shares plunged from January levels of nearly 800p to an October low of 12.25p.

The year also saw one of the most dramatic clear-outs of Marconi's boardroom, with the departure of former chief executive Lord Simpson and chairman Sir Roger Hurn. Just last year both men were regarded as among the cream of British businessmen.

With the promotion of Mr Parton to chief executive and the appointment of new chairman Derek Bonham, Marconi's shares have enjoyed a modest but steady rise.

As one technology analyst said: "Clearly, a rights issue at current prices makes no sense. Shareholders are already too wary of this stock. But at 100p, a rights issue gives the shares a bullet-proof vest."

Many are confident that Marconi shares will recover strongly over the next six months. The company has suffered particularly badly from the economic downturn.

But analysts predict a revival in the equipment-maker's fortunes next year. Two of its major customers, BT and KPN, have largely solved the worst of their debt problems. In the next few months France Telecom and Deutsche Telekom are expected to follow suit.