Marconi confirms takeover talks

LONDON — The fate of the leading communications equipment manufacturer in the U.K. hangs in the balance as Marconi has confirmed it is in preliminary talks about a possible takeover, the suitor most likely being Chinese group Huawei.

Shares in Marconi rose 15 per cent Monday (Aug 8) after the troubled telecoms equipment maker responded to weekend reports that talks have started with a potential buyer.

“The discussions are at a preliminary stage and there can be no assurance that an offer will ultimately take place,” said Marconi in a statement to the London stock exchange. It would not confirm that the talks are with its Chinese partner, with whom it has a wide-ranging distribution agreement.

By mid morning Marconi shares were up 41p at 308p.I

It is thought the deal could value Marconi at about £600million ($1.07 billion).

The first indication that the two companies may seek a closer alliance came earlier this year after BT chose not to award contracts in its groundbreaking £10 billion 21st Century Network upgrade to its long-standing equipment supplier, but did include Huawei, alongside many other, mostly overseas suppliers.

BT said at the time that while Marconi’s equipment performed well in technical trials, the equipment supplier just could not compete on price.

Huawei has built its reputation over the last few years on good products at highly competitive prices, and has won numerous contracts in Europe.

The Chinese group was founded in 1988 and initially sold low-tech equipment but the company now has over 50 branch offices worldwide and a huge R&D budget and campus in the southern Chinese Shenzen province.

Last year it had international sales of $3 billion and domestic sales of $4 billion, making it the largest and fastest growing communications equipment maker in China.

It is still controlled by its founder, former army officer Ren Zhengfei, and unusually for such a large Chinese group, the government has no stake in the operation.

Last week, Mike Parton, Marconi chief executive, reiterated that it would explore all options. "We remain committed to maximising shareholder value and positioning the business for a successful long-term future," he said, as the company unveiled widening first quarter losses and a decline in gross margins.

Observers caution that a deal is not a certainty and that Marconi may be seeking other alternatives.

However, there is increasing realization that the company is unlikely to survive in its present state as it lacks the global scale to be competitive.

British unions have already voiced concerns about the loss of jobs, particularly in R&D, if such a sale goes through.