The struggling telecoms equipment maker Marconi has finally agreed a refinancing deal designed to save the company.

I don't think anybody expects equity holders will be delighted by this

Mike Parton, Marconi chief executive

The deal cuts its debt levels drastically, but means control of the business effectively passes to its creditors - the banks and bondholders - through a debt-for-equity swap.

Its current shareholders will end up with just 0.5% of the company after the deal is completed.

"The financial restructuring will allow the group to emerge with a balance sheet that we believe is robust and appropriate to the size of the business," said chief executive Mike Parton in a statement.

"We have worked hard to refocus the business and reduce costs in response to the severe market downturn experienced across the telecom equipment sector.

"The financial restructuring allows us to plan our future with renewed confidence."

Debt cut

Under the refinancing deal, the currently listed Marconi PLC will effectively be sold to the lenders, and a new business Marconi Corporation, will be created.

Interim chairman Derek Bonham is to step down

Marconi said it expected to complete the restructuring by January next year, after which it would carry about �300m in net debt, compared with the �4bn it currently owes to its banks and bondholders.

In addition to the small fraction of the new company, existing shareholders will also receive warrants giving them the right to buy an additional 5% of the firm, when Marconi's market capitalisation has risen to �1.5bn.

"I don't think anybody expects equity holders will be delighted by this," said Mr Parton.

"This agreement as far as the equity holders really reflects the economic reality of where the company is," he added.

"You have to recognise economic reality to restructure and move forward."

New chairman wanted

Marconi said that it was looking for a new chairman for the revamped company to replace Derek Bonham.

Mr Bonham was brought in last year as an interim chairman following the departure of Sir Roger Hurn.

"Derek Bonham has seen us through a very difficult year and to the point where we have restructured the company," said Mr Parton.

"But it is now appropriate for us to get a new chairman."

Too small?

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

But when worldwide demand for telecoms equipment dried up the company was plunged into crisis.

Senior management was blamed for Marconi's downfall, and chairman Sir Roger Hurn, chief executive Lord Simpson and finance director John Mayo all left the company last year.

At the peak of the tech-boom, Marconi shares were worth �12.40 each, valuing the firm at nearly �35bn, but on Wednesday the shares closed at just 1.7p, giving the firm a value of less than �50m.

Marconi's shares edged slightly higher to 1.83p in early trade on Thursday.

Marconi's fall from grace led to a slew of management changes.

Some analysts have cast doubt on Marconi's survival plans, saying the company, which sold off some businesses to help cut debt, might now be too small to trade its way out of problems.