Ericsson agreed last October to purchase the majority of Marconi’s assets and its name. Under the terms of the deal, it paid 1.2bn pounds ($2.14bn) for approximately 75% of Marconi, which translated to most of its telecoms equipment business. The remaining 25% of Marconi has been spun off into a separate entity known as Telent Plc.
Telent will effectively be a pure-play services business, and will offer a range of services to telecom operators, enterprises, and legacy support services. It is expected to have FY2005 revenue of 336m pounds ($600m), have 2,100 employees, and will be Ericsson’s preferred services provider in the UK. It will also retain Marconi’s existing services customers including BT and Energis.
While Telent’s future business has been secured, the future was less certain for the former 9,000-strong Marconi workforce. Some 6,660 Marconi staff have moved to Ericsson, but the Stockholm, Sweden-based firm has already warned that job cuts are unavoidable and a reduction of between 15% to 20% is expected.
Ericsson’s rationale for the acquisition was that it would help it meet the growing global demand for mobile and fixed broadband internet access. Under the leadership of chief executive Carl-Henric Svanberg, Ericsson has undergone a successful turnaround in recent years. The company is perhaps best known as the one of the largest makers of equipment for mobile phone networks.
Marconi on the other hand was a British institution that could trace its roots back to the company founded in 1897 by Guglielmo Marconi, the Italian inventor of the radio. The business became part of the industrial giant General Electric Company in 1968. However, in the 1990s the firm sold off its defense assets and changed its name to Marconi in an attempt to become a major player in the telecoms market, but it was brought to its knees by an over-ambitious acquisition spree, and the dramatic downturn in carrier spending from 2000 to 2003.
Faced with debts of 4bn pounds ($7.14bn), Marconi was forced into a debt-for-equity swap, asking its banks to accept shares because it could not repay its bills. This left existing shareholders with only 0.5% of the company.
Yet over the past couple of years, the restructured company had been showing signs of recovery, until 2005 when its future was put in the balance after it was left out of the list of preferred suppliers for the 21st Century Network (21CN) project at BT. This was a huge blow, as BT was Marconi’s traditional home patch and source of around 40% of its revenue. After failing to secure the BT contract, Marconi carried out a strategic review of its options, which led to its sale.
There was speculation that China’s Huawei Technologies Co Ltd would be the natural destination for Marconi, but at the last minute Ericsson emerged as the buyer.
