Marconi punished as shares plummet by 28%

Marconi shares plunged by more than a quarter yesterday to their lowest level in more than two decades as the market delivered its damning verdict on the company's management shake-up and Alcatel of France contemptuously dismissed the idea of a rescue takeover.

The 28 per cent slide in the shares was prompted by a wave of negative brokers reports, scepticism over the new chief executive's recovery plan and doubts about the crisis-torn group's ability to achieve its debt-reduction targets.

The renewed retreat in the shares wiped a further £420m off Marconi's value, reducing its market capitalisation to £1.06bn and sealing its humiliating exit from the FTSE 100 index.

Marconi's woes deepened when Serge Tchuruk, the chief executive of Alcatel, said a merger with the embattled telecoms equipment maker would make no sense, adding: "I hope that no one asks me about Marconi again.

The former GEC will be the grandest name on a list of an estimated seven telecoms-related stocks likely to be dumped from the index next week. Spirent, which was called Bowthorpe before it refocused its business on supplying telecoms technology, will join Marconi in relegation to the mid-cap index next week.

The other departing stocks are likely to be: Telewest, the UK's number two cable company; CMG, which supplies text messaging software; Energis, the telecoms offshoot of National Grid; Misys, a telecoms software company; and Colt Telecom, which will run out of money next year.

The shake-out looks like being the biggest since March last year when, at the top of the technology investment boom, nine New Economy stocks were crowned with FTSE 100 status. Of those nine, only three remain.

Next week's reshuffle will see at least two former blue chips – Psion, the palm-held computer maker, and Bookham Technologies, a fibre optics components manufacturer – demoted to small-cap status.

There will be an Old Economy flavour to the new entrants this time. Friends Provident, the demutualised life insurer, is a dead certainty, along with Enterprise Oil. Wolseley, the plumbers merchant, also looks like returning along with the tobacco group Gallaher.