Lucent/Alcatel Rumors Fly

Alcatel SA (NYSE: ALA; Paris: CGEP:PA), which has long been in talks with Lucent Technologies Inc. (NYSE: LU) about Lucent's fiber business, is now in talks to acquire the whole company, according to several published reports.

There are plenty of reasons to be skeptical. For one, Alcatel has been actively shopping around for an American networking company for the past year and has seemed reluctant to pull the trigger. In addition, the deal doesn't have much to entice either side of the bargaining table -- except maybe those who think Lucent needs to be bailed out.

Today's New York Times reported that sources close to Alcatel and Lucent say a deal, if it happens, would be a "nearly all-stock transaction that would represent about a 20 percent premium over Lucent's current value of $33.5 billion." Still, the paper's sources reportedly "described the odds of the deal happening at 50-50."

The Times report kicked off speculation. But today's market activity seems to bear out shareholder distaste for the deal. As this went to press, Alcatel shares were trading at 29.50, down 2.54 (7.93%). Lucent's share price was 10.06, up 0.25 (2.55%). In other words, Alcatel shareholders seem to dislike the prospect and Lucent shareholders either don't believe in a share-price premium or are skeptical of the deal altogether.

Talk of an Alcatel/Lucent merger has persisted ever since Lucent confirmed that it was trying to sell its Norcross, Ga.-based Optical Fiber Solutions Unit (see Lucent's $5 Billion Question) and Alcatel admitted to bidding on it. Indeed, while neither firm will comment on any aspect of the rumors of a full-out merger, analysts say talks have been active for awhile and that they escalated after the recent departure of Lucent's CFO Deborah Hopkins (see Lucent CFO Quits, World Yawns), who they say opposed a merger.

"I think the chance of [a merger] is quite likely, but I don't think it would be a good deal for the shareholders of either company," says Ariane Mahler, analyst at Dresdner Kleinwort Wasserstein. She says overlap between the two firms in all areas would make it tough to gain immediate value from uniting them.

Alcatel has been eyeing Lucent, sources say, to gain more traction in the U.S. market, to widen its influence among U.S. carriers, (particularly the former RBOCs), and to gain access to the rich portfolio of Bell Labs technology.

There's even speculation about a CEO for a new company emerging from the buy: "Krish Prabhu [COO of Alcatel] is talked about as a potential head of the new company. He has already been approached for the CEO jobs at Lucent and Nortel," says Mahler.

But observers say there are significant obstacles. Some point to the risks Alcatel would take in acquiring a company with many strategic and financial problems, including massive debts and mounting losses. Much depends on the potential terms -- and that could be the sticking point in the talks.

"I know the CEOs are talking. But every time Lucent gets the price up the deal gets derailed. Cash is tight at Lucent. At $10 or $11 a share, there's no premium," said one industry source with connections to Lucent, who asked that name and firm be withheld. Indeed, the market, pricing Lucent's stock at $10.20 on the news, did not appear to handicap a premium into the current price of the firm's shares.

And there may even be regulatory issues, given that both companies own sizeable shares of specific segments of the worldwide telecom equipment market, such as ATM equipment. Carriers may object to further consolidation of a market that already has a limited number of top providers.

Alcatel has recently established a pattern of acting acquisitive and then backing down -- almost always because of concerns about the price or due diligence issues at the potential acquiree. In the past year, Alcatel's said to have been in talks with a range of companies, including Alidian Networks Inc., Astral Point Communications Inc., Geyser Networks Inc., Tachion Networks, and Zaffire Inc. (see Alcatel Seeks to Buy Optical Startup). Nothing's come of any of these talks so far.

There's also a chance that another Lucent suitor may emerge. Nokia Corp. (NYSE: NOK) and Siemens AG (NYSE: SI; Frankfurt: SIE) are both said to have considered bids. Also not to be discounted are the potential buyers of Lucent's fiber unit, which include Pirelli SpA and a range of Japanese companies.

Neither Lucent nor Alcatel will comment on any aspect of the rumors. And the bottom line seems unclear. As one analyst put it, "There are too many rumors to know what's right..." Still, some are hedging their bets. "I'm not sure this would provide any value for shareholders. In fact, I'm thinking about taking my target price down [on unspecified figures for both ALA and LU]," says Ariane Mahler.

- Mary Jander, Senior Editor, and R. Scott Raynovich, Executive Editor, Light Reading
Page 1 / 5   >   >>
tycon03 12/4/2012 | 8:22:44 PM
re: Lucent/Alcatel Rumors Fly I think this merger talk is a ploy to get a discounted price for the OFS Business Unit. Alcatel is notorious for making verbal pitchs to companies and then backing out at the last moment. I don't think the US government would allow a French company to merge/takeover Bell Labs. BL has done too much work for the US government and they might deem it a threat to national security to allow Alcatel to assume control of the R&D arm of Lu. I think if OFS is sold and a few more contracts are won Lu can be on the road to recovery. The Lambda seems like a tremendous product and if all goes well with Global Crossing Lu will be a leader in optical networking. One must give them credit for being first to market with MEMS technology. I know people like to bash Lu but fact of the matter is they still have some great talent left and they are winning contracts left and right, if you are in for the long I think LU is a good bet, but the shorts are getting killed and they are the ones ripping the company. The Lambda is Lu's ticket bak to the top. The next few months should be very, very, interesting.
gladysnight 12/4/2012 | 8:22:55 PM
re: Lucent/Alcatel Rumors Fly At http://knowledge.wharton.upenn...

there's quite a good discussion of the idea of an ALA/LU merger (or acquisition).

One thing mentioned was the example of the Daimler Chrysler acquisition (ie NOT a merger) but I felt that one thing they left out was that the DC deal did not add any value whatsoever.

On the contrary the merged entity ended up with the same value Daimler had before it acquired Chrysler, effectively valuing the acquired Chrysler at zero. Any LU and ALA shareholders should take warning from this example. OK, I'm not saying telecoms and motor vehicles are directly comparable as industries, but the two deals face very similar challenges to a successful consummation.

gladysnight 12/4/2012 | 8:22:56 PM
re: Lucent/Alcatel Rumors Fly "Perhaps you'll be telling me next what I'm going
to have for breakfast tomorrow?!"

- Electric Cool Aid? Perhaps you'll be eating your worthless Amazon share certificates . . . they probably provide more nutritional value than financial!

"How is your message related to the Lucent/Alcatel

- You tell me, you're the one who claims that ALA is "cheap" at 23 times earnings.

"Only an idiot would buy a stock based solely on
P/E. One of the characteristics of rapidly
growing technology stocks is a relatively
high P/E anyway. This is fundamental stuff that
you can read in any book."

- mm, and probably worth what you paid for it. Oh, the divine confidence of people who've lived through the longest running bull market in history. Just my opinion, but the carnival is over.

btw, what does "relatively high" actually mean? You've still avoided the question, I note, although implying that anyone who disagrees with you is an idiot was a neat distraction.

If 23 times is cheap then what multiple is not cheap? 40? 50? 80? 223?

If you're going to make these statements then you ought to be able to defend them sensibly. So, is it then your contention that ALA is one of these "rapidly growing tech stocks" that you mention?

Because to me it looks like an old and tired, overly fat and contented, protected by the state in its home territory, retirement home for failed entrepreneurs.
It seems to completely lack any of the characteristic features of "rapidly growing tech stocks" . . . .

SoftwareBoy 12/4/2012 | 8:22:58 PM
re: Lucent/Alcatel Rumors Fly "If the ALA merger doesn't happen now... then it will definitely look bad for LULU."

Absolutely. The thing is so stupid on its face, that you have to wonder about secondary motives. Namely, is Lucent such a train wreck that the execs are simply looking to bail out, grab their golden parachutes and then blame future chaos on Alcatel? You know, "We feel Alcatel has seriously mishandled the merger...." blah blah blah, and other self-serving BS that Lucent execs are so good at spouting.

"80-20 they are merging folks!
Any takers?"

Nah. I might go in at 50-50. Too many problems. Too many regulatory hurdles.

Actually, it may come down to Alcatel getting most of Lucent, with certain parts spun off or sold off to meet market share guidelines. (Hey Henry, sell the VitalSuite stuff to Micromuse! The Vital guys would LOVE to be out from under your incompetence anyway.)

But overall, I just don't see how tossing together two dinosaur companies with monopoly mindsets is going to help anything. Hell, Lucent STILL hasn't integrated Ascend into its corporate structure (the six guys that are left from there). How the hell they going to merge with Alcatel? From a process/backoffice point of view alone it's a disaster.

My final comment on this merger is a musical one. Mr. Sondheim, please cue up the CD....

"Something appealing,
Something appalling,
Something for everyone
A comedy tonight!"
rafaelg 12/4/2012 | 8:23:00 PM
re: Lucent/Alcatel Rumors Fly Damn if you do...
If the ALA merger doesn't happen now... then it will definitely look bad for LULU. SEE #17 if needed. 80-20 they are merging folks!
Any takers?

fatchance 12/4/2012 | 8:23:03 PM
re: Lucent/Alcatel Rumors Fly LU would do better to sell their parts on Ebay rather than join Alcatel. Cisco has a better track record in buying firms and getting value from them. They would add a needed management infusion and a culture that may be more forward looking than they currently have. This would avoid some product overlap and a bloodbath in NJ from layoffs.
johnjohn 12/4/2012 | 8:23:05 PM
re: Lucent/Alcatel Rumors Fly talks with cisco would be a better shot in the arm for the troops. alcatel has no clout in the states.
manoflalambda 12/4/2012 | 8:23:06 PM
re: Lucent/Alcatel Rumors Fly Well, one of the worst BoDs in America (see Fortune mag), decided to look into this --


wildcard 12/4/2012 | 8:23:08 PM
re: Lucent/Alcatel Rumors Fly No why should they.
ng_mui 12/4/2012 | 8:23:13 PM
re: Lucent/Alcatel Rumors Fly >The 52 week range on the stock is 26.6 to 86.25.
>Are you really suggesting that a fall of that
>many points is not a crash?!?

You can see the stability I mentioned if you
compare the stock with the Nasdaq composite, and
others like Cisco, Nortel, Lucent over a 1 year

Of course it followed the general trend of the
Nasdaq composite, but wasn't exposed to the
same magnitude of devaluation as the other
companies I mentioned in the sector in Jan/Feb
this year.
Page 1 / 5   >   >>
Sign In