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Sources: Lucent, Nokia in Play for Siemens

Lucent Technologies Inc. (NYSE: LU) and Nokia Corp. (NYSE: NOK) are among a number of companies to have shown an interest in merging with or buying all or parts of Siemens Communications Group , the telecom business unit of German industrial giant Siemens AG (NYSE: SI; Frankfurt: SIE), according to industry sources.

Siemens has held discussions with a number of parties about potential extensive joint ventures, mergers or even an acquisition, say industry executives who requested anonymity. It is believed that other major vendors, including Nortel Networks Ltd. , and unidentified private equity groups have also made contact about a possible deal.

Talk of such negotiations comes as Ericsson AB (Nasdaq: ERIC) and Lucent prepare for a bidding war to land Ethernet equipment firm Riverstone Networks Inc. (OTC: RSTN.PK) , and as the industry mulls multiple M&A possibilities. (See Ericsson Wants Riverstone and Analysts Dismiss Ericsson/Juniper Talk.)

It also follows last month's suggestion in Germany's Manager Magazine, which cited unnamed executives from the vendor, that Siemens has considered breaking up the unit and either selling off the parts – carrier networks (fixed and mobile), enterprise networks, and devices (wireless modules, for machine-to-machine communications, and the home and office communications devices unit) – or finding partners to help them recover. (See KPN, Siemens Under Scrutiny.)

Nomura Securities analyst Richard Windsor believes Siemens AG's board has been looking to sell the Com assets for some time, and notes that Siemens' recent analyst day included presentations from other Siemens divisions, but not SBS (Siemens Business Services) or Communications.

And while he believes there would be a number of interested parties, Windsor reckons Ericsson AB (Nasdaq: ERIC) would likely be at the front of the queue. "Given Ericsson's recent track record in M&A – it has been very active in the past few months – I'd be surprised if it wasn't considering some of the Siemens Com assets." (See Ericsson Buys Bulk of Marconi, Ericsson Swoops on Axxessit, Ericsson Wants Riverstone.)

But it's likely Ericsson would want to cherry pick specific assets, rather than take the whole company, something Siemens would prefer not to do. Windsor believes an agreement involving the whole of Com is the result the Siemens board is seeking.

While none of Light Reading's sources have mentioned Ericsson as a known suitor, they say discussions with Lucent are at a preliminary stage, and that Nokia has made an initial proposal.

Siemens declines to comment on what Andreas Mueller-Schubert, president of fixed network solutions at Siemens Communications, calls "rumor and speculation." He says "there's always speculation about all sorts of companies."

Nokia had not responded to requests for comment as this article was published, while Lucent and Nortel declined to comment on market speculation

Exit rationale
From Siemens' side, one of the main drivers for the talks is the increasingly competitive conditions in the telecom sector that have left the German company's communications business struggling to meet its financial targets. (See Siemens Spawns a Problem Child.)

During the company's fiscal 2005 results presentation last November, Siemens CEO Klaus Kleinfeld noted that the company's board was "unsatisfied" with the Com group's performance, stating that "our results were heavily burdened by SBS and Com." Those two divisions are the only two of the company's then 12 units (now 11) that were off course to meet the parent company's margin target of between 8 and 11 percent by the end of fiscal 2007.

The increasingly competitive conditions are being intensified by ongoing carrier consolidation – resulting in a smaller number of large customers that have even greater bargaining power – and the growing strength of the Chinese vendors, Huawei Technologies Co. Ltd. and ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), which compete aggressively on price as well as having a broad range of impressive products.

Siemens has already exited the highly competitive mobile handset business, selling its operations to BenQ Corp. , which still uses the Siemens name as part of its handset brand. (See BenQ Buys Siemens Phone Unit.)

Now Siemens is seeking ways to reduce the drag on its overall financial performance by finding a new home for its communications group, and, as with many of the traditional vendors, is looking for the best fit from a political, financial, cultural, and technical standpoint.

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digits 12/5/2012 | 4:01:02 AM
re: Sources: Lucent, Nokia in Play for Siemens Well, it's not a case of forgetting Cisco, it's just that Cisco's name has yet to crop up in relation to the future of Siemens... unless you know something we don't! :-)
materialgirl 12/5/2012 | 4:01:02 AM
re: Sources: Lucent, Nokia in Play for Siemens If CSCO paid $7B for SFA, why not buy into another legacy vendor and boot JNPR out of a big account at the same time?
twill009 12/5/2012 | 4:01:01 AM
re: Sources: Lucent, Nokia in Play for Siemens The sheer size of the Siemens business -- $16 billion in sales last fiscal year -- puts it out of the range of most every company mentioned in the article. Even Cisco would find it difficult to buy something this large after it was severely criticized for buying Scientific Atlanta.

The idea of Lucent or Nortel buying SiemensGÇÖ Com business verges on farce. Their balance sheets stink. Nortel just had to blow billions to settle pending lawsuits. Maybe they could float debt to do a deal, but would you lend any of these companies the money?

There are three conceivable options here, in descending order of likelihood: 1) nothing happens; or 2) Siemens changes its tune about keeping the entire unit together and sells it off piecemeal or 3) Siemens acts a financier of last resort, in essence behaving like GMAC for General Motors (i.e., GÇ£please take our inferior product GÇô weGÇÖll lend you the money to do it.GÇ¥)
Mark Sebastyn 12/5/2012 | 4:01:00 AM
re: Sources: Lucent, Nokia in Play for Siemens Good analysis.

The sheer size dictates it will need to be broken into pieces.

I would expect Ericsson to be interested in the optical portions after acquiring Marconi. This would leave them in a good position to monetize the legacy Euro business with two of the three biggest historical suppliers (The third being Alcatel).
chip_mate 12/5/2012 | 4:00:59 AM
re: Sources: Lucent, Nokia in Play for Siemens Way to go Pat! Confuse the Street with acquisitions in a drive to cover your bets and promises while neglecting your core company and its woes.

Way to go Lucent Board of Directors! Keep paying Pat for doing this.

To pull off all the IMS Press Release wins that Pat has under her belt, she's going to have to make about $4 Billion in technology outlays to cover the promises she's made.

This is going to get real interesting over the next 12 months. Wall Street has given a free hall pass to Pat for Fiscal 2006, ending in September.

2nd Q 2007, ending March '07 should be intersting. REAL interesting.
flam 12/5/2012 | 4:00:58 AM
re: Sources: Lucent, Nokia in Play for Siemens The bozos who couldn't get the French to buy their "merger of equals" story will buy Siemens?

jepovic 12/5/2012 | 4:00:50 AM
re: Sources: Lucent, Nokia in Play for Siemens Depending on how you see it, it makes perfect or no sense that the two weakest major vendors would join forces...
jayjay 12/5/2012 | 4:00:27 AM
re: Sources: Lucent, Nokia in Play for Siemens Lucent and Alcatel are in talks again to try again a "merger of equals". Have french and americans ever be equal?

http://www.lucent.com/press/03...

jayjay
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