Article 43


Alcatel Buys Lucent

This signals the beginning of telcomm equipment manufacturer mergers - and more job cuts.
CNN Money
April 2, 2006

French communications-equipment maker Alcatel said Sunday it would buy smaller U.S. rival Lucent Technologies Inc. for $13.4 billion to gain more market heft and broaden its product mix.

The companies plan to cut about 10 percent of their combined work force, or about 8,800 jobs. The cuts would be “fair and balanced” across geographic regions and business sectors, Lucent said.

Together, the companies will have more power to negotiate prices with their telephone company customers, which have resumed a wave of mergers, and a broader research and development base.

“As we looked at this there is no question this is an R&D issue. Competition is increasing and size and scale really matter,” said Lucent (Research)’s Chief Executive Patricia Russo, who will serve as CEO of the combined Paris-based company, although she does not speak French.

The transaction comes five years after the companies first discussed a merger, but those talks broke down in 2001 after Lucent balked at the idea of a takeover, rather than a so-called “merger of equals.”

Alcatel (Research) now would own 60 percent of the combined company, which will have total revenue of $25 billion (21 billion). It expects the deal to boost earnings per share in the first year, excluding restructuring charges.

Alcatel Chairman and Chief Executive Serge Tchuruk would be nonexecutive chairman. The two companies will have equal representation on the board of directors, with two additional independent European directors.

With the deal, Lucent would gain a stronger partner after struggling to cut costs and restructure after customers curtailed spending after the burst of the Internet bubble, analysts said.

Alcatel, which has expertise in high-speed digital subscriber line (DSL) technology, would gain Lucent’s dominance in wireless technology and contracts with carriers such as Verizon Communications.

Alcatel also gets Bell Labs, Lucent’s historic research arm, which has invented key technology ranging from the transistors and lasers to cellular telephone technology, data networking and communications satellites.

“The question for Alcatel/Lucent is, can they put this company together without a lot of integration risks?” UBS analyst Nikos Theodosopoulos said.

National security issues

Lucent said it would create an independent unit to oversee sensitive contracts with the U.S. government. The subsidiary would be separately managed by a board composed of three U.S. citizens “acceptable to the U.S. government,” Russo said.

Lucent’s government work includes an advanced communications system for the Defense Advanced Research Projects Agency, the Pentagon’s technology incubator.

“I don’t think there’s any rational reason for anyone to oppose this deal. But rationality and politics are two different things. It doesn’t mean that this deal doesn’t become a political football,” said Stephen Kamman, an analyst with CIBC World Markets.

Several recent deals with international companies have raised national security concerns among U.S. lawmakers. Most recently, state owned Arab company Dubai Ports World agreed to transfer operation of six U.S. port terminals to a U.S. entity to defuse a political firestorm.

China’s Lenovo Group Ltd. last year submitted to undisclosed conditions to win approved from the Committee on Foreign Investment in the United States, or CFIUS, to acquire IBM’s personal computer business.

Under the terms of the deal, Lucent shareholders will receive 0.1952 of an ADS (American depositary share) of Alcatel for every common share of Lucent that they currently hold.

That values Lucent at about $3.01 per share, or slightly below its closing stock price on Friday of $3.05.

Lucent Chief Financial Officer John Kritzmacher called the deal “fair and equitable.” The price reflects a 6.7-percent premium over the price of Lucent’s stock before news of the merger talks first emerged 10 days ago.

The price values Lucent at about 17-times earnings, which is below the industry average of about 22-times earnings.

Analysts said the deal could trigger mergers throughout the equipment sector as manufacturers look for ways to cut costs and broaden their product lines. However, The scant premium paid for Lucent could set a low benchmark for other deals.

Satellite complications

The Alcatel/Lucent tie-up had been partly complicated by Alcatel’s plans to increase its stake in French defense electronics group Thales—a politically sensitive issue that has involved the German and French governments.

Alcatel said it remained keen on increasing its stake in Thales. It plans to continue talks with Thales over possibly increasing its shareholding in the group. Alcatel now has a stake of around 9.5 percent in Thales, while the French government holds around 30 percent of Thales.

Defense industry sources have said Alcatel hopes to fold its satellite activities into Thales in exchange for a bigger stake in the company. However, European plane maker EADS is also keen for a stake in Thales.

Sources close to the situation said EADS had the possibility to enter into Thales’ share capital, if it felt it needed to.


Posted by Elvis on 04/03/06 •
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  1. Bush OKs Lucent-Alcatel Deal
    CNN Money
    November 17, 2006

    White House says two firms have entered far-reaching agreements to protect national security.

    The move came despite some concerns about safeguards for classified work that Lucent’s Bell Laboratories conducts for the U.S. government. The companies have agreed to create a separate unit run by Americans to handle sensitive U.S. contracts.

    “Alcatel and Lucent have agreed with U.S. government agencies to enter into two robust and far-reaching agreements designed to ensure the protection of our national security,” White House spokesman Tony Snow said in a statement released in Hanoi, Vietnam, where Bush is attending an economic summit.

    The Committee on Foreign Investment in the United States (CFIUS) spent 75 days investigating the national security implications of the transaction. The interagency panel recommended Bush approve it and he acted days before the Nov. 21 statutory deadline he faced to render a decision.

    Rep. Duncan Hunter, a California Republican and chairman of the House Armed Services Committee, had questioned whether the classified work Lucent did for the government could be adequately protected with the safeguards announced.

    Hunter had sought more information after a lengthy briefing Tuesday by senior executives from the two companies as well as Treasury Department and Pentagon officials.

    Lucent’s government contracts include an advanced communications system for the Defense Advanced Research Projects Agency, the Pentagon’s technology incubator. The company has unclassified government contracts as well.

    During its 80-year history, BELL LABS pioneered work on technologies such as the UNIX computer operating system and the laser.


    Posted by Burned Out Baby Boomer  on  11/20/06
  2. Alcatel And Lucent To Officially Merge Nov. 30

    By W. David Gardner
    Information Week
    November 20, 2006

    The merger was approved by President Bush and the Committee on Foreign Investment in the United States, and the House Armed Services Committee reviewed its national security implications.

    Alcatel and Lucent Technologies said they will complete their merger on Nov. 30, in the wake of approval of the merger by President Bush and the Committee on Foreign Investment in the United States.

    The merger, with France’s Alcatel to emerge as the dominant partner, passed an important hurdle early last week when the House Armed Services Committee reviewed national security implications of the merger in a closed session.

    A chief stumbling block had been the status of Lucent’s Bell Labs, which has produced Nobel Prize winners and a slew of important inventions including the transistor and Unix. Although the committee didn’t spell out in detail any terms agreed to by Alcatel and Lucent, the firms said they had agreed to adhere to certain restrictions.

    In a statement late Friday, Alcatel and Lucent said: “CFIUS prepared a recommendation on the merger transaction to the President of the United States in the final phase of the approval process and the president has accepted the CFIUS recommendation that he not suspend or prohibit the proposed merger transaction, provided that, in time periods specified, the companies execute a National Security Agreement and Special Security Agreement to which they have agreed with U.S. government agencies.”

    While much of the negotiations between the two companies and the government was conduced in secret, Patricia Russo, Lucent’s chief executive, said in written testimony delivered to lawmakers: “As a result of our interactions with CFIUS, we have developed an agreement that will address the national security interests the government had identified.”

    Previously, Lucent had agreed to create a special unit to operate sensitive work and contracts with national security overtones. The agreement calls for the unit to be operated by U.S. citizens.


    Posted by Burned Out Baby Boomer  on  11/21/06
  3. Merger Complete
    December 1, 2006

    The merger is expected to save 1.4 billion euro (1.84 billion dollars) within three years and cut 9,000 of its 79,000 employees. The combined company will have a revenue of 18.6 billion euro (24.5 billion dollars).


    Posted by Burned Out Baby Boomer  on  12/01/06






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