Download - Grop 7 Presentation - Marconi
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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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8/12/2019 Grop 7 Presentation - Marconi
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General ElectricCompany (GEC grewrapidly in the 1960s
under Arnold
Weinstockseffectiveleadership
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8/12/2019 Grop 7 Presentation - Marconi
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General ElectricCompany (GEC grewrapidly in the 1960s
under Arnold
Weinstockseffectiveleadership
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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8/12/2019 Grop 7 Presentation - Marconi
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General ElectricCompany (GEC grewrapidly in the 1960s
under Arnold
Weinstockseffectiveleadership
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
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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8/12/2019 Grop 7 Presentation - Marconi
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General ElectricCompany (GEC grewrapidly in the 1960s
under Arnold
Weinstockseffectiveleadership
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
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
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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8/12/2019 Grop 7 Presentation - Marconi
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General ElectricCompany (GEC grewrapidly in the 1960s
under Arnold
Weinstockseffectiveleadership
GEC grew into aconglomerate withinterests in such
diverse businessesas white goods,
defence electronics,telecoms & powersystems
At its peakGEC had
sales 11bnand a cash
pile of 2bn
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
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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8/12/2019 Grop 7 Presentation - Marconi
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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.