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Alcatel, Lucent in Merger Talks Again


The on-again, off-again merger talks between Alcatel and its troubled U.S. rival Lucent Technologies seems to have awoken from a five-year slumber.

After lawsuits, federal investigations and lowered earnings, the Murray Hill, N.J. Lucent has a chance that won't likely come again, according to analysts.

In hiatus since 2001 when another proposed merger between the French and U.S. telecommunications equipment makers fell through, Lucent today said the companies are talking again.

"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," Lucent said in a statement.

The key phrase is "merger of equals." The 2001 proposed merger fell apart after Lucent saw itself as being acquired by the larger Alcatel. The same stumbling block could reoccur, say some while other experts see the agreement as inevitable.

"I wouldn't be surprised if we don't see a handshake before the weekend is over," said Jay Pulz, a Gartner analyst. Today's confirmation by the two companies is a sure sign talks are in the advanced stages.

Lucent spokesperson Mary Lou Ambrus refused to comment on how long the negotiations have been ongoing or when an announcement would be made. Both Lucent and Alcatel cautioned that no agreement is assured.

"It makes a lot more sense for it to happen now," Juan Fernandez, a Gartner analyst, said. As the recent AT&T, Bell South pact illustrates, the telecom industry is in the mood to merge. The writing is on the wall and the pool of available companies is shrinking, he said.

"The opportunity is not going to come up again" for Lucent.

The company has suffered a string of losses. In January, it told investors it expects lower revenues for the first quarter of 2006. Annual revenue would be flat or see only a slight increase, internetnews.com previously reported.

A month earlier, Lucent was ordered to pay $244 million, after Winstar Communications took the telecom giant into bankruptcy court charging Lucent had breached a partnership agreement.

In 2003 Bob Holder, Lucent's COO during the 2001 merger attempt, was replaced by Patricia Russo.

Lucent is now in better shape than in 2001, and a merger could further revive the company, allowing it to explore more profitable areas, according to Pulz. Spun off from AT&T in 1996, the company has seen its legacy business decline.

For Alcatel, a merger could give it a greater U.S. presence, said Pulz. 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, Pulz said.

But the merger is not a fait accompli.

"Mergers of equal partners are rare and difficult to carry out," said Fernandez, who is unsure if this possible merger is also headed for failure.

For a merger of equals to occur, the two companies must totally synchronize operations and agree on difficult issues, such as workforce layoffs.

While Lucent could become a U.S. based Alcatel subsidiary, saving face for the company, the American telecom firm holds military contracts, reviving fears that French-based Alcatel could witness the same opposition seen when Dubai Ports International attempted to manage U.S.-based ports, Pulz said.

But at least one report indicates the headquarters will be in France. Lucent and Alcatel have agreed to the parameters of a merger, according to the Reuter's Web site quoting sources it said are familiar with the talks. New details in the report state the new combined entity will be headquartered in France, and that Alcatel plans to hold onto its 10% stake in European defense electronics contractor Thales.

Reached this afternoon, Lucent's Ambrus told internetnews.com that the company will still not comment beyond the statement released earlier.

Joseph Laszlo, a telecom analyst with Jupiter Research, says the proposed deal makes sense.

"There's some overlap but their product lines seem to be complimentary," he said.

Laszlo also said the main challenge for the new combined company will how quickly they are able to provide their customers with the infrastructure for the IPTV and video services. Jupiter Research is owned by the same company as internetnews.com.

Michael Hickins contributing to this story. The update includes further analysis and the report the company will be based in France.