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