Marconi bet the company on telecoms, then gave creditors 99.5% of the reset

After George Simpson succeeded Arnold Weinstock, GEC abandoned its diversified conglomerate model and concentrated on communications equipment. It sold businesses outside the new focus, bought telecom suppliers including Reltec and FORE Systems, renamed itself Marconi and described the result as an integrated company focused on communications.

The strategy left Marconi exposed when telecom-equipment demand fell. Its 2001 annual report showed year-end net debt of £3.17 billion, up from £2.15 billion, while operating cash flow swung from a £610 million inflow to a £106 million outflow. The report still expected the communications market to recover after difficult conditions in the first half.

It did not recover in time. By September 2001, Marconi reported a £227 million quarterly loss after network-equipment sales fell 25%. BBC reported about 10,000 announced job cuts and a 95% share-price fall from the end of 2000. Simpson and chairman Roger Hurn resigned.

The restructuring transferred control to lenders. Guardian reported that about £4 billion of debt was exchanged for cash, new debt and equity, leaving roughly £300 million of debt. Banks and bondholders received 99.5% of the replacement company; existing shareholders received 0.5% plus conditional warrants.