Alcatel/Lucent: First Reactions
And it's a deal that has given Alcatel's share price a healthy boost of €0.76, nearly 6 percent, to €13.53 this morning on the Euronext Paris exchange, giving the French vendor a market capitalization of €19.3 billion ($23.25 billion). That's the stock's highest price of 2006 so far.
Why? Well, the merger creates a telecom powerhouse, and the deal doesn't involve any questionable premium over Lucent's current market value.
As the two companies initially stated when they announced merger talks late last month, it's a deal done at current market valuations. Alcatel's offer of 19.52 percent of an ADS (American Depositary Share) per Lucent share values the U.S. vendor's shares at $3.00 each, making it worth $13.4 billion. That's just below Friday's closing price of $3.05, which values Lucent at $13.63 billion.
So Alcatel investors clearly believe this is a positive deal, but what do analysts think?
Graham Finnie, senior analyst at Heavy Reading, believes the two companies will have to be very disciplined to make the merger work.
"Alcatel is clearly the number one partner here," says Finnie, but because the deal is being presented as a merger of equals, "it’s easy to see the potential for a prolonged period of internal in-fighting that will damage the company’s ability to deal with the threat from emerging competitors as well as established competitors."
Then there are the potential geopolitical issues. "Despite the merger of equals language, this will be a French company, based in Paris. How will that go down in the U.S.? Where will the job losses be? Will this be seen as a straightforward takeover of Lucent by Alcatel?"
In addition, the two companies have "given a strong impression that this is mainly defensive, aimed at cutting costs rather than finding new sources of revenue. It's hard to see how this merger will grow the company’s revenues overall." But Finnie sees some positives, too: "From a geographical perspective there are some obvious benefits, especially in the wireless sector where there isn’t much overlap in terms of geography or technology. In IMS [IP Multimedia Subsystem], Lucent also brings its existing wins and strong market position in the U.S., while Lucent Worldwide Services is also a gain from Alcatel’s point of view, since the French firm doesn’t have much of a proposition in professional services."
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