& cplSiteName &

Lucent's $5 Billion Question

Light Reading
News Analysis
Light Reading
4/30/2001

Lucent Technologies Inc.'s (NYSE: LU) thirst for cash is likely to push a deal for its optical fiber unit forward in the next week or so.

But despite Alcatel SA's (NYSE: ALA; Paris: CGEP:PA) prominent figuring in such a potential deal, don't rule out a last-minute victory by a dark horse, including one of the Japanese giants Fujikura Ltd., Furukawa Electric Co. Ltd., Hitachi Ltd. (NYSE: HIT; Paris: PHA), or Sumitomo Corp..

In February, Light Reading reported that Lucent was weighing its options with respect to the fiber unit, specifically a possible deal with Corning Inc. (NYSE: GLW) (see Corning and Lucent May Reach Deal). Then in March, Lucent officially put its Norcross-Ga.-based Optical Fiber Solutions unit up for sale, closing the bidding two weeks ago. Alcatel SA (NYSE: ALA; Paris: CGEP:PA) so far is the only company to publicly confirm the placing of a bid (amount undisclosed). A report in Friday's Wall Street Journal says Lucent and Alcatel have talked about merging in the past and may do so yet.

Lucent's need for cash, a factor that drove the company to spin off Agere Systems (NYSE: AGR) in an unfavorable IPO market, is likely to make something happen relatively fast. (Most analysts say the value of the fiber unit is roughly $5 billion.) Lucent's current financial woes, they say, will put the kibosh on a full-out merger for the present time.

"A merger between Lucent and Alcatel would create a powerful networking company, but I think it's a low probability right now," says Lawrence Harris, VP at Josephthal & Co.. "Alcatel is a value-oriented type of investor, and there are no premiums in the current share prices."

Although Alcatel hasn't been averse in the past to buying companies with operating losses (such as Newbridge Networks), Harris notes it's unlikely it would be attracted to Lucent given the enormity of Lucent's current problems.

Harris doesn't rule out the possibility that Lucent might throw some of its other properties into a pending sale of its fiber business. After all, Lucent has solid value in its optical systems, wireless, and even circuit-switching businesses, he maintains.

But most analysts agree that whatever deals Lucent decides to make, it will make quickly. Besides its own immediate cash flow issues, Lucent needs to come up with about $2 billion in cash by September 30, 2001, in order to complete the divestiture of Agere Systems (NYSE: AGR). According to Harris, this date and amount are in the deal Lucent made with its bankers, which includes a variety of other conditional payments.

Besides Alcatel, offers for Lucent's fiber unit also reportedly have come from Corning Inc. (NYSE: GLW), Furukawa, JDS Uniphase Inc. (Nasdaq: JDSU; Toronto: JDU), Pirelli SpA, and/or Tyco International Ltd. (NYSE: TYC), which purchased Lucent's power systems business back in January 2001 (see Tyco Acquires Lucent Division).

Of these, sources say it's likely the choice will boil down to Alcatel or Furukawa. Other combinations, such as Corning and Lucent, would prompt lengthy regulatory scrutiny. Corning already has a 40 percent market share in the optical fiber business and Lucent has about 20 percent to 30 percent, according to analysts. Alcatel owns only 10 percent and Furukawa less than that. So a combination of Lucent with one of the latter two would not take as long to accomplish as a deal with Corning.

"I think Lucent wants to get this done," says one Wall Street analyst, who asked not to be named. "Also, there have been other bids put in that didn't make the papers. Don't rule out the chance of a dark horse ending up the winner."

Alcatel and Lucent declined to comment on any aspect of a sale or merger.

- Mary Jander, Senior Editor, Light Reading http://www.lightreading.com

(2)  | 
Comment  | 
Print  | 
Related Stories
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
horse_face2002
horse_face2002
12/4/2012 | 8:29:50 PM
re: Lucent's $5 Billion Question
So since Finet is 51% owned by lucent (49% by Furakawa, but thats another story about by-outs) they decided to lay off over 50 workers today..thats about 1/3 of the workers here in scranton dunmore pa.....the pump laser production line is shut down..wonder why..no sales..those SDL chips were nice and high powered..too bad the wavelength was out of spec.."scrap'um, make more, we're cheap labor"...workers motto...22 million upgrades to a new building??..leased no doubt..now we know why they just didnt buy it outright..its all making sense...they should lay off some managers....too many chiefs and not enough indians....stay tuned..the union will be there soon in Finet...they wont be taking the work away from allentown and reading if we got paid the same wages now would they?.....but if they lay off even more we can maybe make money???....try again Lucent
watchtower
watchtower
12/4/2012 | 8:29:39 PM
re: Lucent's $5 Billion Question
rumor says LU is also planning to cut out its software group. Remember the $1.3 billion purchase of Kenan? What a waste of what seemed to be a good company. I've also heard that Nortel is planning a spin-out of their software products.
Featured Video
Upcoming Live Events
December 3-5, 2019, Vienna, Austria
December 3, 2019, New York, New York
March 16-18, 2020, Embassy Suites, Denver, Colorado
May 18-20, 2020, Irving Convention Center, Dallas, TX
All Upcoming Live Events