Grop 7 Presentation - Marconi

8/12/2019 Grop 7 Presentation - Marconi

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Group 7

Meor Ahmad ShahruzzamanMusili Mustapa

Mohd Fadli Bin MahmudAlif Huazam Bin Abu Kasim


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General ElectricCompany (GEC grewrapidly in the 1960s

under Arnold

Weinstockseffectiveleadership


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under Arnold


GEC grew into aconglomerate withinterests in such

diverse businessesas white goods,

defence electronics,telecoms & powersystems

At its peakGEC had

sales 11bnand a cashpile of 2bn


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under Arnold





At its peakGEC had


Lord Weinstock

retired in 1996 &was replaced by

George Simpson,a former executive

at Rover

Simpson and his

finance directorJohn Mayomasterminded a

complete rethinkingGECs corporate

strategy


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under Arnold





At its peakGEC had


Lord Weinstock



at Rover

Simpson and his



strategy

They decided tofocus the companyon the fast-growingtelecoms equipment

industry

He bought two mid-sized UScompetitors (Reltec for $2.1bnand Fore for $4.5bn) for largesums of money & invested indeveloping a range of new

products


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under Arnold





At its peakGEC had

sales 11bnand a cash

pile of 2bn

Lord Weinstock



at Rover

Simpson and his



strategy

They decided tofocus the companyon the fast-growingtelecoms equipment

industry

He bought two mid-sized UScompetitors (Reltec for $2.1bnand Fore for $4.5bn) for largesums of money & invested indeveloping a range of new

products

To pay for this growth, most otherbusinesses, including defence

electronics, white goods and powersystems were sold off. To reflectthis change of strategy, GEC was

renamed Marconi


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Marconis shareprice peaked inAugust 2000 at12. Then things

started to go badlywrong. The dot-com

bubble burst&demand for new

telecomsequipment dried up

Marconis shareprice dropped even

though it deniedthat its sales had

been hit. Then,when the profitwarning finallycame, angry

investors dumpedthe stock

The downturn wasfar more severe

than anyoneanticipated and withlarge and mountingdebts Marconi wasfacing bankruptcy,its shares worth

less than one percent of their peak

value


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Marconis shareprice peaked inAugust 2000 at12. Then things

started to go badlywrong. The dot-combubble burst

&demand for newtelecoms

equipment dried up

Marconis shareprice dropped even

though it deniedthat its sales had

been hit. Then,when the profitwarning finallycame, angry

investors dumpedthe stock

The downturn wasfar more severe

than anyoneanticipated and withlarge and mountingdebts Marconi wasfacing bankruptcy,its shares worth

less than one percent of their peak

value

Simpson and Mayowere forced out. A

new executive teamwas brought in;37bn of marketvalue had been

destroyed in just ayear and a half

In November 2003Marconi announced

half-year losses of149m in the periodto September, downfrom 458m a year

previously

Thousands of jobswere lost, andMarconi was

employs one third ofits 12,400 globalworkforce at UK


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Marconisstory is aclassic tale of

anoverambitiousgrowthstrategy andsubsequentcollapse

WhereMarconi wentwrong was

that it paidcashbecause ithad plenty ofit

rule

oneIf you are going tooverpay for anacquisition, better

to overpay withyour ownoverpriced shares.The cash drainfrom these

acquisitions iswhat ultimatelykilled Marconi


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Marconisdecision tomajor on onebusinessand sell therestisexactly whatthe marketswere askingfor

But Marconisfailureunderlineshow risky thissort ofrefocusingcan be.Simpson putall his eggs inone basket

but it was arelativelyuntested &new basket atthat

Suchdramaticchanges incorporatestrategy canwork.

But moreoften than notmajorchanges instrategy takea companyinto newareas that itdoes notreally

understandand theresults end upbeingdisastrous


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It is apparent that whilst it was wrong for themature defence businesses to be financed usingequity, it was also wrong for the high growthtelecoms businesswith its considerable business

riskto be funded mainly with debt. The Marconi story appears to be a case of total

mis-match of business and financial strategies.However, whereas GECs over-reliance on equity

merely irritated its shareholders, Marconis over-gearing destroyed the value of their investment.

Grop 7 Presentation - Marconi

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