Alcatel Are Far Along In Merger Talks
Linkup of Telecom Suppliers Would Add to Rapid Pace Of
By DENNIS K. BERMAN, SARA SILVER and ALMAR LATOUR
Staff Reporters of THE WALL STREET JOURNAL
March 24, 2006
Lucent Technologies Inc. and France's
Alcatel SA said they were in advanced talks on a merger
that would create a trans-Atlantic equipment supplier with a
market value of $33 billion in the rapidly consolidating
A linkup between the two, anticipated since a deal attempt
failed five years ago, could help both realize substantial
cost savings and likely would kick off a new round of
consolidation among the already-pressured companies that
supply equipment to phone companies.
Lucent Technologies Chief Executive Patricia Russo would be
the chief executive of the combined company, people familiar
with the matter said. And the two firms would have equal
representation of a new board of directors, these people
Given the cultural and logistical challenges, moreover, a
merger could prove to be among the more complicated recent
couplings in the industry. With protectionist sentiment
growing in both the U.S. and Europe, a merger could prove a
critical test of cross-border cooperation for the French and
In a joint statement late yesterday, the companies said: "We
can confirm that Lucent and Alcatel are engaged in
discussion about a merger of equals that is intended to be
priced at market. There can be no assurances that any
agreement will be reached or that a transaction will be
consummated. We will have no further comment until an
agreement is reached or the discussions are terminated."
Many details were unclear, including just how the two
companies might pull off a "merger of equals" when they have
such divergent valuations. Lucent has a market value of
$12.6 billion, while Alcatel's market capitalization is
$20.2 billion. The disparity suggests a deal may be
structured as an acquisition of Lucent by Alcatel.
Consolidation pressure has been growing in the equipment
business amid a wave of telecom deals and the emergence of
more-efficient technologies. That has limited the amount of
money that big phone companies have to spend on equipment.
The result has been too many equipment makers chasing a
limited amount of business.
The industry's biggest suppliers -- which include such
Nokia Corp. and
Motorola Inc. -- compete for contracts in nearly every
corner of the globe, from Latin America to China. But their
primacy in some markets is waning as suppliers from China
flood into the developing world offering cut-rate equipment.
At the same time, the technology of transmitting phone
calls, Internet data and TV signals often is regarded as a
national resource to be protected from foreign meddling, and
a Lucent-Alcatel deal could draw close scrutiny.
Lucent's telecom switches, for instance, are in phone hubs
around the U.S. -- and are subject to routine wiretapping
and monitoring of law enforcement. It also runs Bell Labs, a
decades-old institution descended from the old AT&T Corp.
that is the force behind some of the most innovative U.S.
research into communications.
By merging with Lucent, Alcatel would greatly expand its
presence in the U.S. market. Alcatel already is the world's
leading seller of "digital subscriber line," or DSL,
equipment, which U.S. phone companies have been buying to
expand their broadband businesses. Lucent would give it a
major share of the U.S. wireless-equipment market as well.
Lucent is a leading maker of the technology used by several
major carriers including Verizon Wireless, a joint venture
Vodafone Group PLC and
Verizon Communications Inc., and
Sprint Nextel Corp.
Telecom has seen a massive wave of consolidation during the
past two years, with the announced value of U.S. deals alone
exceeding $200 billion. Most recently,
AT&T Inc. announced plans to buy
BellSouth Corp. for $67 billion. Other transactions have
included Verizon's acquisition of MCI Inc., and the earlier
purchase of AT&T by SBC Communications Inc., which took the
The backdrop is a flood of new technologies and new
competitors that have driven down the prices of traditional
phone services while introducing a host of new services that
are dramatically changing the way consumers and businesses
communicate. While phone service over the Internet is taking
off, for instance, the cable industry is making a big grab
for the traditional residential landline business of
telephone companies like Verizon and AT&T. In turn, phone
companies are starting to offer television service over
The changes are creating opportunities for some equipment
makers. But they also pose challenges because improved
efficiency enables carriers to replace huge switches and
other pieces of equipment with computers and software.
There already has been some merger-and-acquisition activity
in the equipment business. In October, Telefon AB L.M.
Ericsson of Sweden agreed to acquire Marconi Corp., of
London. In February,
Cisco Systems Inc. completed an acquisition of
Scientific-Atlanta, giving it a major beachhead in the cable
TV, video-on-demand and emerging Internet television
businesses. Motorola has plans to spend up to $1 billion to
buy small companies.
Lucent, of Murray Hill, N.J., and Alcatel have come close to
merging before. In the spring of 2001, they were on the
verge of a $23.5 billion deal, hammered out among executives
in a 16th-century castle outside of Paris. But Lucent, which
had initiated the conversations, ultimately backed out
because its management felt the deal was turning into a
takeover rather than a merger of equals.
Shortly after the 2001 merger's collapse, Serge Tchuruk,
Alcatel's chairman and chief executive, said the company's
goal of becoming a bigger player in the U.S. market remained
"absolutely essential." Alcatel has acquired a number of
smaller U.S. data-networking players, but an acquisition of
Lucent would be by far its largest deal here.
Of late, Alcatel's financial performance has been stronger
than that of Lucent. In 2005, Alcatel posted sales of 13.1
billion ($15.8 billion), up from 12.2 billion in 2004, and
net income of 930 million, compared with 576 million in
2004. After suffering with other equipment manufacturers
from the telecom meltdown, it has been making a steady
comeback thanks in part to streamlining, job reductions and
asset sales. Mr. Tchuruk also has been trying to broaden the
company's client base beyond the telecom industry.
Lucent's Ms. Russo also has been credited with a turnaround
after the turmoil of the telecom bust, producing two years
of stable growth partly by expanding in emerging markets.
But most of the profit Lucent generated actually came from
credits in its overfunded pension plans, not from
operations. In its first fiscal quarter in 2006, the company
booked a net loss of $104 million and a 12% decline in
sales. Company officials said an anticipated increase in
demand from telecom carriers didn't materialize at the end
of last year.
contributed to this article.
Dennis K. Berman at
email@example.com, Sara Silver at
firstname.lastname@example.org and Almar Latour at