The Bloor Perspective: Marconi, Vodafone and lessons from telecoms acquisitions

Last week saw two major players in the telecoms industry, Marconi and Vodafone, announce their financial results. At the height of the dot-com boom, when telecoms seemed to be the place to be, both companies went on buying sprees - now the bubble has burst and they amongst many others are experiencing mixed fortunes.

Marconi's woes have been well documented. Currently the shares stand round the 30p mark with a 52 week high of 872p, and in the recent past have been as high as 1250p. In last week's announcement of half-year annual results Marconi posted the largest ever interim loss by a British company, £5.1bn, a figure mainly reflecting the write-offs from the company's good times shopping spree.

In an attempt to turn things around the company has initiated a debt reduction programme, with the aim of lowering debt to the more manageable levels of between £2.7bn and £3.2bn. Whether or not the programme works has yet to be seen, but with debt of this level, the problems start to reside with the banks rather than Marconi.

Vodafone, the world's largest mobile phone operator, reported a sharp rise in the first half of the financial year underlying earnings and margins, both beating forecasts. Added to this was a 15 per cent increase in the company's subscriber base.

The results included a write-off of £4.7bn, mainly associated to Vodafone's $164bn acquisition of Mannesmann AG in April 2000, the largest ever acquisition.

As the stock markets recover from the New York plane crash, share prices now show a true reflection of the markets view of these announcements, with Vodafone rising as Marconi continues its move downward. One of the key differences between the two companies is how they handled their acquisitions - Marconi bought for cash while Vodafone preferred the share-based deal.

At a time when we have seen numerous mergers and acquisitions, many companies must be asking themselves if it was wise to raid the war chest for a shopping spree.

Further Bloor this week:
http://www.silicon.com/a49226