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More than 1,300 Marconi employees stand to lose their jobs after Sweden's Ericsson bought the bulk of the UK telecommunications equipment maker in a £1.2bn (€1.8bn) deal on Tuesday.

The takeover of Marconi's equipment and international services businesses will involve the transfer of 6,670 Marconi employees, and Carl-Henric Svanberg, Ericsson chief executive, said that significant job cuts were inevitable. He expected to lose 15-20 per cent of the workforce. Under the deal, Ericsson will acquire Marconi's optical networks operations, most of its network access business, its data networks operations and international services operations. Annual sales at these businesses come to a total of about £1bn.

Ericsson, which will also acquire the Marconi brand name, said on Tuesday that the agreement did not mark a departure from its long-term strategy of pursuing organic growth. Marconi shareholders will receive a cash pay-out of 275p in the first quarter of next year, and will retain ownership of the remaining business, consisting of a UK services arm with sales of £336m a year. This business, which will be renamed Telent, will retain responsibility for Marconi's 69,000-member pension fund, which under UK accounting rules has a deficit of £109m.

Britain's pensions regulator has stipulated that the company must set aside £675m to cover these liabilities. About £185m is to be paid into the fund immediately, with another £490m to be held in an escrow account to cover future liabilities.

The terms of the settlement, which take account of possible adverse market conditions in setting reserve requirements, are likely to become a blueprint for other companies whose businesses have shrunk to the point where they are swamped by the size of its pension debt.

Mike Parton Marconi's chief executive, who will now lead Telent said he was hopeful that some of the escrow funds could eventually be returned to shareholders. Some shareholders were dismayed at the big pensions payments but many were relieved the company had been able to secure a deal. Marconi shares rose more than 5 per cent to 369¼p, while Ericsson's shares were flat at SKr26.30.

Copyright The Financial Times Limited 2017. All rights reserved.
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