The effect of corporate restructuring on the shareholders’ value: the case of GEC/Marconi

Abstract

GEC/Marconi’s transformation from a diversified conglomerate to a focused telecommunications and information technology company was an eventful and rambling transmission that resulted in the deterioration of shareholders’ value. It represents one of the most dramatic falls from grace in British corporate history and one of the greatest corporate governance fiascos of all time. The study investigates the wealth effects of Marconi’s sell-offs and acquisitions on its shareholders’ value by calculating the abnormal returns on the announcement days of all the disposals/acquisition during 1996-2002. The results support the view that shareholders’ value increases when a company proceeds to corporate sell-offs to pursue a focus strategy. However, the authors conjecture that GEC/Marconi has destroyed shareholders’ value through these disposals/acquisitions because of several mistakes, such as being prone to heavy debt.