Marconi takes a bath with options

Distressed vendor Marconi expects to lose more than $310 million from a hedging strategy designed to offset the cost of an employee share option program, according to media reports.

In November 1999, Marconi announced an options program that would award 38,000 employees a 1,000-share stake in the company if its London-traded shares reached 16 pounds ($23.54). To reduce the cost, the company arranged forward contracts to buy shares at about half the target price. In the interim, however, Marconi’s share price dropped below 20 pence ($0.29), causing the large liability.

Marconi has said part of the $310 million has already been accounted for in a writedown announced on Sept. 4. The company will release its trading statement on Oct. 15.

Marconi announced a major corporate overhaul in early September that involved a 25% staff reduction and sales of noncore assets. The company is carrying a debt load of $6.6 billion, more than six times its market capitalization.

--Vincent Ryan, senior editor