Marconi denies investors vote on refinancing

Marconi, the telecoms equipment group crushed by a £4bn mountain of debt, plans to deny its shareholders the right to vote on a complex financial restructuring that will leave them controlling just 0.5 per cent of the company's equity.

The group yesterday revealed the key terms of the long-awaited debt-for-equity swap that hands the stricken business to its creditors, including a syndicate of 28 banks and a string of bondholders. The talks have dragged on since October.

Under the non-binding indicative deal, Marconi plc will be delisted and wound up with Marconi Corporation created to become the new holding company. Creditors will swap existing debt in Marconi plc for a package of cash, 99.5 per cent of the equity in Marconi Corp and new debt securities.

Marconi's chief executive, Mike Parton, said the deal was agreed on the condition that shareholders would not be allowed to vote on the plan.

Mr Parton said: "I don't think anybody expects equityholders will be delighted by this but it is just a sad thing that has happened. It also reflects the economic reality of where the company is now."

The decision on whether to waive the normal requirement for shareholder approval rests with the Financial Services Authority. The City regulator is expected to decide soon. Marconi has held talks with the FSA to explain why it wants the vote waived, and the regulator is expected to agree to the request with conditions attached.

Marconi's creditors have refused to sign up to any deal that allowed for a shareholder vote, arguing that it would be "disproportionate to shareholders' economic interest in the group", given Marconi's dire financial condition.

Marconi's board said it believed that without creditor support for the restructuring it would be "forced into an insolvency procedure".

Existing shareholders have also been granted warrants that mature four years after completion of the restructuring, allowing them to buy 5 per cent of Marconi Corporation's shares, with a strike price equivalent to a post-restructuring market capitalisation of £1.5bn.

Marconi's board believes that "a consensual restructuring is the only viable alternative to an administration".

The precise timetable for the rescue refinancing, which will cut net debt to about £300m, has not been finalised but Marconi expects to send out detailed documents in early November and complete the process in January by listing Marconi Corporation in London and on Nasdaq.

Mr Parton said the deal "will allow the group to emerge with a balance sheet that we believe is robust and appropriate to the size of our business.... The financial restructuring allows us to plan our future with renewed confidence".

Marconi also published some detail of its current business plan. Running to 2007, it forecasts the market downturn will start to ease by the end of 2003, but not before conditions get worse in some areas, notably the US. No deterioration in the UK is predicted. It is targeting operating profits of £199m in 2004, on sales of £2.6bn, rising to £311m the following year with sales up to £2.9bn.

The riches to rags story of the 116-year-old company, the former GEC industrial conglomerate, has seen the group slash about 14,000 jobs to shore up its finances after a disastrous spending spree. Lord Simpson, ousted as chairman last year, turned a £2.6bn cash pile created by the late celebrated industrialist Lord Weinstock – who retired in 1996 – into a £4bn deficit in just five years.

Marconi built up the debts during an acquisitions spree at the height of the telecoms boom. At its peak it was valued at £35bn. Yesterday, with the shares up 0.45p to 2.15p, it was valued at £60m.