Marconi's £300m investment in Easynet deal sours

Recriminations have broken out at Marconi over the troubled telecom equipment company's decision to pump more than £300m into a joint venture to develop a new telecoms network alongside the country's canal network.

Directors are said to be distancing themselves from the merger of Marconi's Ipsaris broadband network with Easynet, an internet service provider, after the value of the combined entity collapsed since the deal was done less than two months ago.

Shares in Marconi itself fell a further 5 per cent yesterday to a fresh low of 68p as rumours of another profit warning and possibly a fund-raising exercise continued to swirl around the markets.

Sources said yesterday that Marconi's management team were particularly unhappy that the value of Easynet, in which it has a 72 per cent interest, had plunged way beneath even the £314m of cash the business started life with.

At the end of June, Marconi bundled Ipsaris into Easynet in a deal valuing the combined entity at around £475m. However, Easynet shares have fallen around 35 per cent since the merger to last night's 277.5p closing share price. The business is now worth just £172m.

Marconi's directors, who were said to be questioning whether the deal should have gone ahead at all, are now faced with the decision of whether to unravel it in an attempt to salvage both the cash invested and their share of the assets or persevere. Their frustration is further exacerbated by the failure to raise an extra £50m by selling some of their Easynet shares.

Under the original deal, Marconi hoped to raise £50m by tendering 11.6 million of its Easynet shares at 430p each. However, market conditions prevented that offer from ever getting off the ground and the company has agreed not to sell any shares until Easynet's 2001 results have been published.

A spokesman for Marconi would not comment on the rumours although he denied that the boards of Marconi and Easynet were at odds.

"Both sets of management are working together in parallel towards the same common goal," he said.