Marconi to return £577m to investors

Marconi, the telecommunications equipment supplier, on Friday put forward detailed plans for the return of £577.5m to shareholders through a special dividend and share consolidation.

The company, which last month agreed to sell the bulk of its assets to Ericsson, its Swedish rival, for £1.2bn, is to pay a special dividend of 275p a share to investors following the completion of the deal.

The remaining Marconi business, to be renamed Telent, will consolidate every seven existing shares into two new shares to keep the share price at a stable level following the pay-out.

The Ericsson deal and return of cash are subject to approval by shareholders at an extraordinary meeting on December 21.

Marconi also unveiled interim results, largely in line with expectations, showing flat revenues and a small improvement in profitability.

Revenues in the six months to the end of September rose from £594m to £597m, while pre-tax losses narrowed from £41m last time to £30m, thanks to cuts in operating expenses.

Most of the half-year losses were due to a restructuring charge of £29m, if this is excluded Marconi was close to returning to break-even.

Losses per share narrowed from 20.3p to 14.8p.

In spite of narrowed losses, analysts said the Marconi results showed that the company was still underperforming the sector.

“Profitability, though improved, is still pretty poor,” said Richard Windsor, analyst at Nomura. “This highlights that what Marconi really needs is scale, which becoming part of Ericsson will give it.”

Marconi also revealed that its pensions deficit - which is to remain the responsibility of the rump Telent business, had widened from £230m at the end of March to £358m at the end of September.

However the increase in deficit was partially offset by higher-than-expected asset returns. Analysts at Dresdner Kleinwort Wasserstein said that the strong asset performance was positive, as it increased the likelihood of Marconi eventually being able to return some of the money it has set aside for pensions liabilities.

As part of the Ericsson transaction, Marconi has agreed to pay £185m to top up the pension fund and will put another £490m in an escrow account to cover liabilities.

However, the management is hopeful that the pension fund could be sold into the secondary market.

Marconi shares fell 3¾p to 381p on Friday.