Slams Alcatel-Lucent Deal
Firm Says Holders Of French Company Should Reject Merger
By Leila Abboud
The Wall Street Journal
Wednesday, August 30, 2006
French investor-advisory firm Proxinvest is urging
shareholders of French telecommunications-equipment maker
Alcatel SA to reject a proposed merger with U.S. rival
Lucent Technologies Inc., raising a potential roadblock
as shareholders on both sides of the Atlantic prepare to
vote on the deal next month.
In a letter sent to fund managers Monday, Proxinvest said
Alcatel shareholders were paying too much for Lucent and
advised them to vote against the deal. The letter also
slammed proposed changes to the corporate bylaws that would
make it harder to unseat the chief executive and chairman.
Alcatel shareholders are scheduled to vote on the proposed
merger at the French company's annual meeting Sept. 7 in
Paris. Lucent shareholders will also vote on the merger
that same day. For the merger to be approved, two-thirds of
shareholders in each company must vote for it.
Proxinvest's position differs from that taken last week by
the U.S.-based proxy-advisory firm, Institutional
Shareholder Services. In its merger analysis released last
week, ISS recommended that shareholders of both firms
support the deal, citing its "compelling strategic
rationale, attractive synergies and conservation
valuation". Another U.S.-based advisory firm, Glass, Lewis
& Co., also came out in favor of the deal last week.
Alcatel and Lucent announced their proposed merger in
April. The move was a reaction to intensifying competition
in the telecom-equipment business, especially from new
low-cost manufacturers emerging from China. Consolidation
among operators of telecommunications networks in recent
years has also reduced the pool of buyers and put pressure
Lucent and Alcatel were considered natural merger partners
because they have overlapping product lines and different
strengths. More than two-thirds of Alcatel's business is
from Europe, Latin America, the Middle East and Africa. The
French company is particularly strong in equipment that
enables regular telephone lines to carry high-speed Internet
and digital-television traffic. Nearly two-thirds of
Lucent's business is done in the U.S. Alcatel had 2005
revenues of €13.1 billion ($16.75 billion) and a market
capitalization of €13.04 billion. Lucent had revenue of
$9.44 billion last year and a market capitalization of
But since the merger was announced, Lucent issued a profit
warning in July and weak quarterly results, prompting some
Alcatel shareholders to question the value of the deal.
Lucent reported a 79% drop in profit and declining sales for
its fiscal third quarter because of weak spending from U.S.
"The outlook for Lucent has significantly worsened since the
deal was announced," said Richard Windsor, an analyst at
Nomura Securities. "The strategic rationale for the deal is
still there but I just think Alcatel is offering too much
and should pay less."
Alcatel spokeswoman Regine Coqueran said the company's board
had done an exhaustive and "prudent analysis of Lucent's
business and believed that the price set in April was
appropriate. The value of a company depends more on
long-term perspectives than on one or two quarters," said
Lucent spokeswoman Mary Lourdes Ambrus said, "We believe the
terms of the merger are fair for both Lucent and Alcatel
Proxinvest critiqued the financial terms of the proposed
merger, under which Alcatel would pay Lucent shareholders
0.1952 Alcatel share for every Lucent share they own,
valuing each Alcatel share at just over five Lucent shares.
Proxinvest said that given Lucent's falling share price and
weak performance, the exchange rate should be closer to
seven Lucent shares for each Alcatel share. Lucent's shares
gained three cents to $2.29 in late afternoon trade on the
New York Stock Exchange. Alcatel's shares, meanwhile, rose
22 cents to $12.34 on the exchange.
Proxinvest also criticized a proposal that would require
votes from two-thirds of board members to remove either the
chief executive officer or the chairman of the combined
company. The Alcatel spokeswoman said the rule would only
last three years and was aimed at ensuring management
stability after the merger. The new rules also allow
Alcatel's 68-year-old CEO, Serge Tchuruk, to remain the
nonexecutive chairman of the new company without a specific
age limit mandating his retirement. The new rules would
only require one-third of the board members be younger than
70 years old, which means Mr. Tchuruk would likely be able
to remain on as long as he choses.
"This is a dramatic worsening of corporate governance and is
not good for shareholders," said Pierre-Henri Leroy,
president of Proxinvest.
Write to Leila Abboud at