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Alcatel tie-up with Lucent faces hurdles(Business, The (London) (KRT) Via Thomson Dialog NewsEdge) Mar. 26--Alcatel and Lucent Technologies are in merger talks that could lead to the formation of a new leviathan in the world telecoms equipment market, with a capitalisation of more than $35bn (20.1bn, 29bn). The companies said on Friday they were talking about a "merger of equals intended to be priced at market". But with Alcatel capitalised at $22.8bn, against $12.6bn for Lucent, any share-swap deal would look like a takeover by Alcatel. That would comfort the French government, which has proved hostile to any loss of French control or corporate culture in international mergers, but could prove a test of protectionist sentiment in the US, not least because Lucent owns Bell Labs, the source of much US telecoms innovation. Combined, the group would have annual revenues of $21bn, marginally ahead of rival Cisco Systems, and would open the US market to Alcatel's cables and Internet switching equipment. The deal is the brainchild of Serge Tchuruk, the former boss of oil group Total, and architect of Alcatel's recovery from the collapse in sales that followed the bursting of the Internet and telecoms bubble in 2001. If the merger goes through, US sources said Lucent chief executive Patricia Russo would be operational chief and the companies would have an equal share of board seats. That would solve a succession problem for Tchuruk, whose dauphin, Philippe Germond, quit last April. Anglo-Australian Mike Quigley, who replaced Germond, has worked at Alcatel since 1971 and previously headed Alcatel USA, but remains relatively new to the chief executive's role. Analysts mostly reacted with enthusiasm to the announcement, though some expressed reservations. Rmi Thomas, an analyst at CAI Cheuvreux in Paris, said consolidation among equipment makers was inevitable: "We have seen a similar movement of consolidation among operators. This is excellent news because it would reinforce the position of Alcatel in North America in mobile infrastructure and new generation networks." It could also boost Alcatel's earnings per share with effect from 2007, he said. But Richard Windsor, analyst at Nomura in London, said he was "far from convinced Alcatel needs Lucent to achieve its long-term ambitions", and highlighted Lucent's liabilities. Shares in Thales, the French defence group that is Britain's biggest defence contractor after BAE Systems, surged 4.6 percent on the news as investors speculated that a deal under discussion between Alcatel and Thales might be abandoned. Alcatel, which has 9.5 percent of Thales, proposed injecting its satellite manufacturing business and defence communications arm into Thales, in exchange for new shares that would have given it 30 percent of the capital. But after months of discussion, talks appear to have stalled because of disagreements over asset valuations. A deal with Lucent would make more sense for Alcatel than a deal with Thales, Thomas said. Alcatel and Lucent previously held merger talks in 2001, at Lucent's initiative, but Lucent backed out when it began to seem it was being taken over. In a joint statement on Friday, Alcatel and Lucent said: "There can be no assurances that any agreement will be reached or that a transaction will be consummated." They said they would make no further comment until a deal was done, or dropped. Both Alcatel and Lucent have undergone massive restructuring since they last talked about a merger. When the Internet bubble burst, Lucent's sales halved, as did those at Alcatel. Tchuruk adopted radical measures, closing or selling plants and has gradually engineered an impressive recovery, and net income for 2005 up 61 percent to 930m on revenues 7.3 percent ahead to 13.1bn. Alcatel has 1bn of net cash. The company is world leader in the supply of ADSL lines that provide domestic broadband connections. In the UK, where it employs 2,000, its Greenwich plant makes 40 percent of the world's submarine fibre optic cables. It also builds turnkey telecoms networks. Lucent, which was spun out of AT&T in 1996, was once the darling of US investors, but was almost wiped out by the post-bubble meltdown, though Russo has rebuilt sales and profitability thanks to its strength in switches used to route telecoms and internet traffic. Nonetheless, net income for 2005, at $1.19bn, was bolstered by tax refunds, and achieved on sales up 4 percent to $9.44bn. Any deal would be likely to attract close examination both by anti-trust regulators and the French and US governments concerned about the security implications of sharing defence-esensitive communications technologies. Rivals such as Nokia, Ericsson and Motorola are also sure to highlight any concentration in the market share of particular technologies that could leave them at a disadvantage. |