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Lucent, Alcatel Rekindle the Flame

Alcatel (NYSE: ALA; Paris: CGEP:PA) and Lucent Technologies Inc. (NYSE: LU) confirmed last night they are in talks for a possible $33 billion "merger of equals."

"We can confirm that Lucent and Alcatel are engaged in discussions about a potential merger of equals that is intended to be priced at market," the companies said in a press release issued just before midnight Eastern time. "There can be no assurances that any agreement will be reached or that a transaction will be consummated. We will have no further comment until an agreement is reached or the discussions are terminated."

Such a deal would further the consolidation among large equipment vendors, as it comes on the heels of the Ericsson AB (Nasdaq: ERIC) purchase of Marconi Corp. plc assets. (See Ericsson Buys Bulk of Marconi.)

But it almost certainly takes Lucent out of the running for Siemens Communications Group . Earlier this week, Lucent and Nokia Corp. (NYSE: NOK) were said to be interested in that division of Siemens AG (NYSE: SI; Frankfurt: SIE). (See Sources: Lucent, Nokia in Play for Siemens.)

Vendor consolidation makes sense given recent carrier mergers, particularly in the United States. The recently enlarged AT&T Inc. (NYSE: T) has put in its bid for BellSouth Corp. (NYSE: BLS), and Verizon Communications Inc. (NYSE: VZ) is said to be eyeing Qwest Communications International Inc. (NYSE: Q). With fewer customers to pursue, it seems natural for the vendors to start glomming together as well. (See Ma Bell Is Back! and Verizon Merger Rumors Send Qwest Up.)

But wait -- doesn't this deal sound familiar? It should. Alcatel and Lucent did the merger dance in 2001, when the dotcom bubble was deflating. Reports back then said the deal would have had Alcatel taking the reins, satisfying the French company's craving for a stronger North American presence. But the whole thing collapsed within a month of being reported. (See Lucent/Alcatel Rumors Fly, Alcatel/Lucent Work Continues, and Alcatel, Lucent Throw in the Towel.)

Things are different now. After years in the dumps, Lucent is again being taken seriously, thanks to a resurgence keyed to IMS. (See LR Names 2005 Leading Lights Winners, SBC Jumps on Lucent IMS Bandwagon, and Lucent Lands BellSouth IMS Deal.)

Lucent isn't entirely out of the woods. The company still faces questions about its pension overhang, and shareholders recently rebelled against what they say is exorbitant executive pay. (See Pension Concerns Hit Lucent and Lucent Shareholders Rebel .)

Still, Lucent's fortunes have turned the tables on Alcatel. This time, according to the Wall Street Journal, it's Lucent taking the lead in the merger, with Lucent chief executive Pat Russo being considered as the merged companies' CEO -- even though Alcatel's $20.2 billion valuation dwarfs Lucent's $12.6 billion. The report also says the companies would be equally represented on the combined board of directors; Lucent's dissatisfaction with the board split reportedly helped doom the 2001 deal.

And to think we were all making a fuss over $207 million for Riverstone Networks Inc. (OTC: RSTN.PK) . (See Lucent to Spend $207M for Riverstone.)

— Craig Matsumoto, Senior Editor, Light Reading

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MorningWd 12/5/2012 | 4:00:26 AM
re: Lucent, Alcatel Rekindle the Flame Give me a break! Lucent in the lead? Besides IMS, what does LU have to bring to this offer to let them steer the ship, especially by Russo? LU has the worst reputation in the industry amongst the large vendors.

The companies that would benefit most from this would be everyone besides ALA and LU, as they'd have the chance to gain ground as ALA tried to swallow that poison. I think that the "merger of equals" talk is purely political.

At least if they put Russo in charge I'd know to start shorting ALA.
loose_photon 12/5/2012 | 4:00:25 AM
re: Lucent, Alcatel Rekindle the Flame Or, come on! It is a marriage made in heaven. Praise the Lord! h-ALA-LU-jah!

Too bad 'lucatel.com' is taken - it would make such a nice baby name.


lp

P.S. Any ideas what the resulting monstrosity will be called?
MP_UK 12/5/2012 | 4:00:25 AM
re: Lucent, Alcatel Rekindle the Flame
MorningWd: "Give me a break! Lucent in the lead?"

----------------

That's what I was thinking. As far as I can see, ALA seem to be doing just fine as they are
- Huge share of the DSL market
- Good story on optical transport
- Leaders in metro ethernet with the Timetra platforms

ALA seem to be on the up with strong products in many areas, why would they want to join forces with Lucent, to gain... errr...?
mpnn 12/5/2012 | 4:00:24 AM
re: Lucent, Alcatel Rekindle the Flame Why would Lucent and Alcatel merge?

By merging, what are the benefits, do they gain any specific competitive advantage, which portfolio areas have the greatest future potential?
optodoofus 12/5/2012 | 4:00:22 AM
re: Lucent, Alcatel Rekindle the Flame Let's see who stands to gain from an Alcatel/Lucent merger:

1) shareholders - the shareholders could come out ahead (and big) if

a) The two companies resolve the tremendous overlap in products/solutions,

b) shed a huge number of employees to take advantage of synnergies

c) keep all their current revenue (which might not be easy to do if MDing half of their combined product set)

d) resolve all the resulting political infighting without several years of distractions

e) manage to maintain the pity buying that Lucent is currently enjoying form the ILEC sector in the US. (Those good old boy connections may go up in smoke if the French take over the helm)

Hmmm. that's a lot of ifs.

2) employees - nope. they take it on the chin, no two ways about it. And given how difficult it is to get rid of people in Europe, Lucent and Alcatel employess here in the States would seem to be at greatest risk of being out of a job.

3) customers - not likely. The combined company will need to MD a large number of products to achieve synnergy savings. That means forced migration for a large number of customers. Also, a smaller number of vendors means more pricing power (at least in theory). And the inevitable political and merger issues will surely knock both companies' product roadmaps off track. If you are counting on Lucent or Alcatel to deliver something you need (like, say, IMS or IPTV), this merger is not good news for you.

4) competitors - likely positive for Lucatel competitors. There will certainly be much FUD swirling around the impact of this merger. If you are about to award business to one or the other of these companies, you're going to need a lot of fortitude to assume that they are going to deliver and support the platform for the foreseeable future. This gives the competition another club to wield against Lucent and Alcatel. And this will be true even if they decide not to merge. The mere existence of merger discussions is enough to rev up the FUD machine.

All in all, I don't see how this merger makes sense in the short-term (say next 1 - 2 years). Longer term, it could be good for both companies and the telecom supplier industry in general. The question is, does the management of either company have the will to do what is right for the log term and resist the short term pressure. We'll see.

optodoofus
routerbox 12/5/2012 | 4:00:19 AM
re: Lucent, Alcatel Rekindle the Flame Alcatel acquires Timetra.
Timetra becomes Alcatel, and it zips Alcatel's profits.

Some summers and falls later.

Lucent acquires Riverstone.
Alcatel acquires Riverstone.

Big Question for Alcatel

What should it do with Riverstone? Its got Timetra already in its plate. The most probable result: Shut down Stone and stop all further development happening there.

Was this all preplanned?

Lucent had around O(700) million cash of which it spent around O(200) million to acquire Riverstone. This is a HUUUUUUUUGE sum!

Was this fueled by Alcatel from the very beginning?

Comments?
routerbox 12/5/2012 | 4:00:18 AM
re: Lucent, Alcatel Rekindle the Flame > Lucent acquires Riverstone.
> Alcatel acquires Riverstone.

Typo. It should have been
"Alcatel acquires Lucent"
flam 12/5/2012 | 4:00:16 AM
re: Lucent, Alcatel Rekindle the Flame I'd be saying, "Mod Parent Insightful."

trzwuip 12/5/2012 | 4:00:15 AM
re: Lucent, Alcatel Rekindle the Flame You tell me what IMS stuff is in the field working enmasse today? Lucent's big IMS announcement seem like a lot of hype to me and no action?

I really would like to know where this stuff is out of the lab and into the field!?
skinbop 12/5/2012 | 4:00:13 AM
re: Lucent, Alcatel Rekindle the Flame hey loose photon - my wife says its bad luck to say the "H" word during the Christian Lenten season.
Just thought you should know.

EOM
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