Marconi has negotiated a refinancing deal with its lenders to help pay down its crippling debt. The company says its current shareholders will end up with just 0.5% of the restructured company.

BBC News Online takes a look at how the company got into this mess and asks what the deal means for Marconi shareholders.

Bring me up to speed - why is Marconi in such financial trouble?

Marconi transformed itself from an industrial business - it was previously called GEC - into a telecoms company at the height of the dot.com boom.

It expanded rapidly and bought a lot of other businesses at inflated prices.

At the time, banks were willing to lend Marconi huge sums of money to do this.

But when the dot.com bubble fizzled out, Marconi realised it had run up unmanageable debts and overpaid for its purchases.

So how much does it owe and how will this refinancing deal help?

Marconi owes about �4bn to its banks and bondholders - �2.7bn to a syndicate of 31 banks and �1.3bn to bondholders.

It has negotiated an agreement which gives the banks and bondholders virtually full control of the company, in return for cancelling a large chunk of the debt - what is known as a "debt for equity" swap.

The deal is expected to be completed by January 2003, after which Marconi says its debts should be down to about �300m.

What happens to shareholders?

Under the terms of the deal, the currently listed company Marconi PLC will effectively be sold to the lenders, and a new business, Marconi Corp, will be created.

It is in Marconi Corp that shareholders will then own a stake, although this will be a substantially reduced one.

In all, shareholders will own only 0.5% of the new company between them.

Shareholders will also be given warrants, which will allow them to buy another 5% of the issued shares in the new company, once Marconi's market value has risen to �1.5bn.

However, this could take some time as Marconi is currently valued at less than �50m.

Are there a lot of private shareholders and can they protest about this?

A large number of Marconi's shareholders are staff or private investors who own a small number of shares each.

Marconi's last annual report stated that there were 187,000 shareholders holding fewer than 5,000 shares. That translates to 87% of the shareholders - though they own just 10% of the company between them.

The majority of the company, about 70%, is owned by a few major institutions such as Fidelity, Colonial and First, and Phillips and Drew, who have very large shareholdings.

Shareholders appear to have few options regarding the refinancing, as if they let Marconi go bust, they get nothing.

Also it's unlikely shareholders will get a say in approving the restructuring as Marconi has applied for a waiver from the UK financial watchdog, the Financial Services Authority.

There is always the hope that the company will make a strong recovery and the shares will be worth more than they are now.

In Marconi's prime it was valued at 1240p per share, or �35bn. Since its downfall, shares have collapsed to just 1.7p, giving the company a market value of less than �50m.

How were things allowed to get so bad before anything was done?

Marconi's critics say one of its biggest mistakes was not renegotiating the terms of its debt when it had the chance, last autumn.

The company was under pressure to repay its debt by March 2003.

After the company issued a profit warning, the banks offered to extend the repayment date to 2005, in return for higher interest charges.

Marconi's board refused and stuck to its pledge to cut 25% off its debt by March 2002. But as the telecoms downturn worsened, so Marconi's debt increased and the banks got tougher.

Why didn't the banks just let Marconi go bust?

For all that has gone on, Marconi is still worth more as a going concern than if it is left to collapse.

It has a lot of loyal customers and if it can keep them on board, that is the best way to maximise the value of the business and for banks to see some return on their loans.

Customers are quite likely to remain loyal too, as it is relatively difficult to just swap suppliers.

Why aren't other companies in the sector in the same trouble?

A lot of them are! The whole telecom sector has crashed dramatically leaving even the bigger groups like Nortel, Lucent and Alcatel with huge debts.

A few of them have managed to raise money on the stock market to pay down debt, such as Lucent.

But almost all have suffered huge job losses, as Marconi did too.

The difference with some of the larger companies is that the levels of debt relative to the overall size of the business is smaller or has been borrowed over longer periods of time.

What happens now - are there any signs of recovery in the sector?

In a word - no. There have been a few flickers but no real improvements in trading in the sector and the short term outlook remains weak.

But with the whole sector struggling, it is likely that some consolidation is on the horizon. And Marconi is a likely target.

Analysts have suggested the networking group Cisco, which has substantial reserves of cash, might be interested in buying Marconi.