Marconi warns of £5bn loss as chief is ousted

But Lord Simpson can expect a £1m pay-off
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The Independent Online

Lord Simpson of Dunkeld, one of Tony Blair's most prominent business supporters, was in line for a £1m pay-off from Marconi last night after presiding over one of the most disastrous company collapses of recent times.

His departure yesterday as chief executive of the crisis-torn telecoms equipment manufacturer came as the company warned that it was heading for a £5bn loss this year – the biggest in UK corporate history. Marconi also announced the resignation of its chairman, Sir Roger Hurn, and a further 2,000 job cuts, bringing the number of redundancies this year to 10,000.

There was further bad news for jobs as British Airways said it was shedding 1,800 jobs because of a sharp fall in profits and a slowdown in the world airline market.

In the City there was widespread relief at the ousting of Lord Simpson and Sir Roger. In the past 12 months, the share price of Marconi has plunged by 96 per cent as the hi-tech bubble has burst, wiping £33.5bn from the value of the business.

Last night Marconi shares closed at a new all-time low of 53p, valuing the company at just £1.5bn and prompting renewed speculation that it is now wide open to a takeover bid.

Mike Parton, Marconi's new chief executive, refused to comment on Lord Simpson's severance terms but confirmed that he was eligible for his contractual benefits. Last year Lord Simpson, who was on a one-year contract, earned £1.002m and received extra pension benefits worth £425,000. However, the former Marconi chief's three million share options are now worthless. Last year they were worth just over £20m.

Union officials described Lord Simpson's likely pay-off as a "disgrace". A spokesman for the Manufacturing, Science and Finance Union said: "If any of our members performed so badly, they would be rewarded with the sack. There appears to be one rule for executives and another for everyone else."

The departure of the chairman and chief executive represents a clean sweep of Mar- coni's top ranks. In July it parted company with its chief executive-designate, John Mayo, following the first of two calamitous profit warnings. Yesterday Marconi admitted it would make a £227m operating loss for the first half of this year, having forecast only eight weeks ago that it would break even.

Lord Simpson took the helm at Marconi in 1996 when it was still called GEC, and was credited with transforming the business from a sprawling indus- trial conglomerate into a star of the high-technology sector, cashing in on the explosion in the telecoms market. He sold GEC's defence interests to British Aerospace for £7.7bn and quickly used up the £2.6bn cash mountain built up by his predecessor, Lord Weinstock, buying two US makers of internet equipment for $6bn (£4.2m) in rapid succession.

But when the internet bubble burst, so did Marconi's prospects, and it is now labouring under a debt burden of £4.4bn. The new management said itspriority would be to reduce Marconi's debts but ruled out an emergency share issue to keep the business afloat.

Lord Simpson's humiliating exit from Marconi is an embarrassment for Labour as he was also a high-profile backer of the party. He came out in support of Mr Blair before the 1997 election and was among a list of 58 prominent business leaders who endorsed Labour in the run-up to this year's election. He was ennobled in 1997.

The 2,000 redundancies announced yesterday follow 4,000 job cuts in July and 4,000 earlier in the year. Some 600 of the latest redundancies will be in the UK but Marconi said there would no need for further plant closures. The earlier job cuts included the closure of its facility in Coventry.

Marconi said the rationalisation measures would enable it to save £600m a year in costs. But it is also taking £4.5bn in one-off charges, provisions and write-downs of assets this year.