Select Page Alcatel In Takeover Talks With Lucent By Todd Jatras

News and views from Europe:

* French telecommunications equipment company Alcatel is in negotiations to acquire struggling counterpart Lucent Technologies for more than $40 billion in an all-stock deal, according to The New York Times. Alcatel has previously said it is looking at certain Lucent operations, but denies it is considering a bid for the whole company. If Alcatel’s SergeTchurukSerge Tchuruk succeeded in buying Lucent, it would be one of the biggest gambles yet for the Frenchman of Armenian descent, who has made his name using astute deals to bring companies back from the brink.

May 19, 2001

Lucent and Alcatel Said to Re-assess Possible Deal


ritical reaction yesterday from investors about Alcatel’s plan to acquire Lucent Technologies prompted the two communications equipment companies to consider re-evaluating the terms of a possible merger, executives close to the talks said.

Alcatel, Europe’s No. 2 maker of telecommunications equipment, had been considering paying more than $40 billion for Lucent but is now unlikely to pay much more than the $34 billion that Lucent is currently worth, the executives said. Alcatel is backpedaling a bit after its stock tumbled 7.2 percent yesterday, falling 2.60 euros, to 33.40 euros ($29.37) after a report about the talks in The New York Times. Shares of Lucent rose 14 cents, to $9.95.

The deal, which both sides have privately said would be billed as a merger of equals, would nonetheless still be an acquisition of Lucent by Alcatel, the executives said. Lucent’s board is expected to meet next week to consider whether to enter into formal negotiations with Alcatel.

Spokesmen for Alcatel and Lucent declined to comment yesterday.

A combination is seen as more palatable to Henry B. Schacht, Lucent’s chairman and chief executive, if it puts Lucent on an equal footing with Alcatel, people close to the companies said yesterday.

After all, Lucent, based in Murray Hill, N.J., was the world’s largest maker of communications equipment until recently. Only in the last couple of years has Alcatel of France ‹ retooled by its chairman and chief executive, Serge Tchuruk, with an emphasis on selling a new generation of communications products ‹ come to be viewed as a serious competitor of Lucent and Nortel Networks of Canada.

Mr. Schacht, Lucent’s first chief executive when it was spun off from AT&T in 1996, returned last October to head its restructuring effort. He is known to value strengthening Lucent’s businesses more than selling them. But it is not entirely clear with whom and how control would rest if Lucent were to merge with Alcatel.

Risks from a possible deal for Alcatel also became apparent yesterday. In addition to the drop in its share price, Alcatel’s debt rating was put on review for a possible downgrade by Standard & Poor’s. Earlier this week, Moody’s Investors Service gave Alcatel a negative outlook. If those agencies lower their ratings, that could translate into increased borrowing costs for Alcatel.

There is also concern over the cash Alcatel would need to buy Lucent’s optical business, for which it has submitted a bid, and over resources Alcatel would have to commit to reduce Lucent’s debt if a merger occurred.

National security questions were raised yesterday about the prospects that Bell Labs, Lucent’s research arm, with 30,000 scientists, could be absorbed into a foreign company. An aide for Senator Robert G. Torricelli, Democrat of New Jersey, the state where Lucent is based, said that the senator had expressed his concern to Lucent officials.

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