DEAL OF THE WEEK – ERICSSON ACQUIRES MARCONI
IMAGINE what would happen if one of France or America’s proudest corporate or industrial names were to be taken over by an overseas competitor.
Loud calls for government intervention would probably be heard resonating up and down the Champs Elysees or Pennsylvania Avenue. Unions would cry foul and try to block the deal. But this is not how things are done in today’s Britain.
Last week Marconi, the former GEC, which under the stewardship of Lord Arnold Weinstock became one of the world’s industrial powerhouses, was swallowed up by Swedish telecoms group Ericsson for a relatively measly £1.2 billion.
At its peak GEC — which was renamed Marconi after selling defence arm to British Aerospace in 1999 — had a market capitalisation of £35bn. It had interests in everything from defence to medicine, electronics to telecoms.
The Daily Telegraph noted that the Chelmsford, Essex-based company “went out with a whimper and not a bang”. There was no nationalistic breast-beating nor even a Rover-style backlash. The trade union Amicus welcomed the deal. “The takeover by Ericsson, a world-class company with a reputation as a strong investor in research and development, will come as some relief to Marconi workers, ” said Amicus national official Peter Skyte.
Per Lindberg, analyst at Dresdner Kleinwort Wasserstein, said: “There is absolutely no reason why this could not be good for the R&D base in the UK.”
The end game for Marconi was played out in April, when it failed to secure even a small piece of a £10bn order to help build a new 21st-century network for BT. Fearing this mean Marconi would struggle to win any business from other telecoms groups, investors took fright and the stock lost more than half its value in two trading sessions. The firm was once again forced to slash costs.
This brought back memories of the 2001 crisis at Marconi, when the firm come close to collapse following the dotcom and telecoms crash. The ludicrous sums shelled out by Weinstock’s successor, Lord George Simpson, to acquire US telecoms equipment makers, coupled with the collapse of key markets, meant it became a prominent member of the “90% club” — meaning its shares had lost more than nine-tenths of their peak value.
After Simpson’s unseemly departure, Marconi was rescued by its banks and bondholders, who exchanged their debt for equity.
But on Tuesday, Marconi agreed to sell 75% of its business to Ericsson leaving a rump business which is being renamed Telent. This will specialise in servicing customers such as BT, Cable & Wireless and Network Rail, but also retains responsibility for the former GEC’s UK pension scheme, a legacy that did not appeal to the Swedes.
Indeed, in a sign of things to come, the Marconi pension scheme took centre stage in the entire deal.
Under an agreement hammered out with the Pensions Regulator, Marconi has promised to pump £185 million into the scheme to wipe out its £141m deficit and to place £500m into an escrow account which trustees can fall back on if the fund falls into deficit again.
Ultimately, Marconi intends to sell the fund, which has liabilities of around £3bn and 69,000 retired and deferred members, to a “zombie” fund consolidator such as Resolution.
This suits Ericsson, which is more interested in getting its hands on Marconi’s technology, which it sees as a passport to the integration of mobile and traditional telecoms. “The acquisition has a compelling strategic logic and is a robust financial case, ” said the Swedish firm’s CEO Carl-Henric Svanberg. But he added that Ericsson would need to cut around 1,000 of the 6,700 jobs it is taking from Marconi.
In France or the US, Marconi CEO Mike Parton would have been pilloried for selling the nation’s industrial heritage down the river. But, given the company nearly snuffed it in 2001, most UK commentators took the view that Parton had done the best he could both for it and its pensioners.
This “Deal of the week” article was published in the Sunday Herald on 30 October 2005