Marconi stock in free fall

March 22, 2002 Posted: 6:57 AM EST

Investors despair at more bad news

LONDON, England (CNN) - Marconi's stock market value was slashed by more than half on Friday after it failed to get crucial funding from banks.

More than £250 million ($350 million) was wiped of the value of the loss-making UK telecom equipment maker after the company issued another warning about debt and sales.

Its stock dived 57 percent to 7.75 pence, valuing the company at about £180 million. During the telecom boom in 2000, its stock was worth £12 and its sprawling empire more than £30 billion.

Marconi (MONI) has been in talks with its lending banks for some time to refinance a 4.5 billion euro ($4 billion) loan and a 3 billion euro facility that it had not used yet so it could extend the repayment of its debts beyond next year.

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"In practice it means that the banks are getting very nervous about the risk of bankruptcy and they are extending much harsher conditions on Marconi," Per Lindberg, a telecoms analyst at Dresdner Kleinwort Wasserstein, told CNN.

Marconi warned on Friday market condition for its telecoms equipment continued to be "difficult" and an expected pickup in sales in the second half of this year would be "considerably less pronounced" than a year ago.

"In the light of the group's revised view of the extended market downturn, it no longer believes that the refinancing proposal provides the group with an appropriate capital structure," said Marconi in a statement to the London Stock Exchange.

Marconi, which has axed thousands of jobs and sold businesses to reduce its debt, has been hurt as the likes of its biggest customer BT Group slashes spending to counter a global economic slowdown and cover the $100 billion cost of high-speed mobile phone licenses.

A glut of excess capacity is also hurting its bigger North American rivals Nortel and Lucent.

Marconi's problems began when it started buying phone equipment businesses at the peak of the market.

"The only prudent approach is to find buyers for each entity of Marconi and thereafter continue with operations," said Lindberg.

The company expects its fourth quarter to the end of March will be in line with forecasts and at similar levels to the third quarter.

Marconi said its debt, which stood at £3.5 billion at the end of December, would be within the end-March target range of £2.7 billion to £3.2 billion. It also expects to reduce its core operating cost base to £1 billion pounds a year by the end of the fourth quarter.

Marconi ousted its chairman and chief executive in September after it was forced in July to cut its sales targets, which it had stubbornly stuck to, even as rivals were reigning in costs and earnings targets.

Marconi, which changed it name from GEC after selling its defence business to BAE Systems for £7.7 billion in November 1999, sold businesses worth more than £9 billion as it raised funds to turn itself into a purely high-speed telecoms equipment company.

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