Marconi on the verge of agreeing to concede control to its bank creditors

Marconi remained locked in talks with creditors yesterday over how much of the company's cash pile they can get their hands on, as it looked increasingly likely that shareholders will get wiped out under any restructuring plan.

It is thought that negotiations centre on the details of the business plan presented by Marconi to banks, which are owed £2.3bn, and bondholders, owed a further £1.7bn. Marconi cannot afford to service this debt. Management, led by the chief executive Mike Parton, are arguing with the creditors over Marconi's £1bn-plus cash pile.

Mr Parton believes the company needs most of the cash, which was raised through a disposals programme, as working capital to keep the business going. Creditors however will want at least £500m of the cash, to make their books look better.

Marconi yesterday gave no details on the progress of the talks or when a deal might be agreed. The parties are working on a heads of terms agreement that will then have to be formally agreed internally by each of the 30 banks and the bondholders involved.

A statement from the telecoms equipment maker said: "Marconi confirmed that negotiations are ongoing with its syndicate lending banks and certain bondholders in respect of the group's financial restructuring."

Banks and most bondholders – who have formed into a negotiating committee represented by the US law firm Bingham Dana – view a restructuring as a better alternative to putting Marconi into administration. However, the debt-for-equity deal being negotiated would give creditors up to 100 per cent of the company's equity, leaving existing shareholders with little or nothing at all.

Hilary Cook, an analyst at Barclays Private Clients, said: "What's clear is that there's nothing in it for shareholders. They are too far back in the queue. If Marconi gets out of this one it should be renamed Houdini."

The company's shares sank a further 30 per cent yesterday to a new all-time low of 2.52p, valuing the company at £70m. However, even this lowly value for the former FTSE 100 star indicated that some investors are betting that not all the existing equity will be wiped out under the restructuring deal.

Ms Cook added: "The talks over this [restructuring] show that creditors are willing to give Marconi enough breathing space until the market improves. In a better environment, Marconi might have found a trade buyer instead. There is a need for consolidation in this sector but there is no one strong enough to do it."

Banks, led by Barclays and HSBC, and bondholders will receive equity on a pro-rata basis depending on how much each creditor is owed by the company. The debt-holders hope that equity will be worth something when the telecoms market improves but that is likely to be some years off. The detailed terms of the restructuring have not yet been agreed and whatever the majority sign up to is likely to be contentious. The rescue plan envisages a continued stock market listing.

Per Lindberg, an analyst at Dresdner Kleinwort Wasserstein, said: "Marconi is such a blemished brand that it would be much better to take it private and then bring it back after a couple of years as a slimmer and smaller company." He said the shape of the restructuring plan was partly a "face-saving" exercise by the creditors, embarrassed over their levels of exposure to the group. Putting Marconi into administration would make the scale of the disaster more immediately apparent, he said.