Alcatel/Lucent Wait on W OK

Approval for the merger of Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU) looks set to be granted, or denied, by U.S. President George W. Bush. (See Alcatel, Lucent Seal Deal.)

That's because the final regulatory clearance the two vendors need, from the Committee on Foreign Investment in the United States (CFIUS), is heading for the office of the President of the United States (POTUS). (See Alcatel, Lucent Need One More Blessing.)

Lucent won't comment on the status of the CFIUS approval process, or reveal the date on which its submission to the Committee was made. A Lucent spokeswoman says only that the company expects the CFIUS process to take 90 days, and still expects the merger to be completed before the end of 2006.

By Light Reading's calculations -- based on nuggets of information included in Lucent's filings with the Securities and Exchange Commission (SEC) -- the submission was made some time between August 8 and 23.

As it's now late September, the initial 30-day period, after which the CFIUS could have issued a "no action" letter that would have sanctioned the merger, has passed, and Lucent's submission must have been recommended for a formal investigation.

So where is the approval process now? The formal investigation period lasts 45 days, during which the CFIUS must prepare a recommendation for the POTUS. The White House would then have 15 days to decide whether to approve or deny the merger.

That total process adds up to 90 days, meaning Alcatel and Lucent should be chanting their wedding vows, or drowning their sorrows, some time around mid-November.

Should, as expected, the merger get the thumbs up from Dubya, the combined might of the two vendors is set to leave its competitors in its wake, according to one Wall Street analyst. In a research note issued today, Prudential Equity Group LLC analyst Inder Singh writes that the sheer size and breadth of the merged company, with annual revenues of $25 billion, will win out during "the current phase of consolidation." The combined scale of the two companies "distances them from smaller competitors, raises competitive barriers to entry, and provides a more profitable return on their technology portfolios," states the analyst.

"The merger with Lucent should create an end-to-end equipment supermarket, with an unrivaled customer base and client relationships," writes Singh. [Ed. note: Will it have a deli counter?]

That supermarket will, once the merger is complete, lead the fixed optical sector (about 25 percent market share), fixed broadband access (about 40 percent share in DSLAMs), multiservice switching (about 41 percent), be No. 3 in IP routing, with about 8 percent of the market, and have strong positions in CDMA and UMTS 3G mobile infrastructure, and professional services. (See Alcatel Snags Nortel 3G Unit, Alcatel Tops Optical, and FTTx, VDSL Markets on the Up .)

The vendors have also identified $1.7 billion in savings, which Singh believes Alcatel Lucent will achieve more quickly than the projected three years by reducing headcount by between 12,000 and 13,000, rather than the 9,000 stated when the merger was first announced in early April. Increasing the number of job losses "would likely advance the timing of savings, leading to stronger earnings growth for 2008." (See Alcatel/Lucent: No Job Cut Clarity Yet.)

But initial integration issues could hold back the Wal-Mart of telecom for a while, reckons the analyst. "In the near term, the merger integration could create a distraction, and we would not rule out some temporary loss of momentum, including soft results [for the second half of 2006]. However, we believe the longer-term EPS growth outlook from substantial potential cost synergies will reward shareholders over the next 2 years."

Singh slapped a 12-month price target of $23 on the giant, merged vendor, "assuming the deal closes."

— Ray Le Maistre, International News Editor, Light Reading

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