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Lucent, Alcatel Finalize Merger

Lucent  and Alcatel  made it official Sunday: a merger of a U.S.-based communications legacy and a French networking giant to create a dominant provider of converged networking services across the globe.

If approved, the companies said, the merger agreement would create a company with about $25 billion (21 billion euro) in revenues and position it as the first truly global communications solutions provider with the broadest wireless, wireline and services portfolio in the industry.

"This is truly a defining moment in our industry, for our companies, for our customers and for our people," Lucent CEO Patricia Russo said during a press conference Monday. "This is a merger of equals," which "will meet all the challenges ahead of us in our markets."

Russo is slated to take over the combined companies as CEO and the company will be based in France.

"We are not naive about the challenges of integration that will be required," she said. But the two companies are confident that the merger can create "significant synergies, and in so doing, create tremendous value for shareholders for both companies."

She was referring in part to questions of how the two cultures will be merged, and which side would bear the brunt of the layoffs, which are expected to be about 10 percent of the combined workforce of about 88,000.

In recent weeks, hundreds of thousands of workers have taken to the streets to protest a proposed law in France that would make it easier to lay off workers.

The details of the merger suggest that France will be have the upper hand in control of the combined company. In addition to being based in France, the company's shares will be listed in France. Alcatel and Lucent will each have six board of directors on the board, but two of the independent directors have to be European nationals.

As for the military contracts that Lucent holds with the U.S. government, Russo said a separate subsidiary would be formed, based in the U.S., for those contracts, as part of the merger agreement.

The drivers of the merger, said Serge Tchuruk, CEO of Alcatel, are growth and increased competitiveness in this industry and to build on market opportunities for next-generation networks, services and applications, while yielding significant synergies.

"We are the answer to the high complexity of networks. Networks are converging. There's really no clear cut border between mobile and fixed networks," Tchuruk said. "We are an answer to what most customers want, to work with a partner, not just a supplier. Our raison d'etre is innovation."

Lucent was spun off from AT&T's storied Bell Labs division in 1996. The company has seen its legacy business decline and was hard-hit when the dot-com bubble burst in 2000, but has climbed back to profitability in the past few years.

However, in January, it lowered revenue guidance for the first quarter of fiscal 2006 to about $2.05 billion, significantly lower than the $2.44 billion average estimate of analysts polled by Thomson First Call.

Lucent also said it expects revenues in the second half of the fiscal year to be significantly higher than the first half of the year, thanks in part to its evolving multimedia subsystem, which supports the delivery of voice over IP (VoIP) .

For Alcatel, a merger could give it a greater U.S. presence. While Alcatel is strong in ADSL, Lucent provides access to the Baby Bells and CDMA. A stronger Alcatel could also compete with Cisco for VoIP or triple-play business, analysts have noted.

But the two companies are faced with a massive job of synchronizing operations on both sides of the Atlantic, while agreeing on workforce layoffs where operations overlap.