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Lucent Brushes Up on French With Alcatel Merger

News of the proposed $13.4 billion merger with Alcatel sent some at the U.S.-based Lucent Technologies polishing up their French while others updated resumes.

The new joint company worth $25 billion plans a European headquarters and an 8,000-person job cut.

While CEOs of the two companies focused on the synergistic benefits of a "merger of equals" between wire-line Alcatel and wireless Lucent, analysts and others point out this new marriage could have a rocky start.

Although the agreement could spur competitors Nortel or Ericsson to merge or force networking giant Cisco to seek out smaller vendors to plug any gaps, challenges remain, according to Brian Partridge, a Yankee Group senior analyst.

Whereas Jeff Heynen, an analyst with Infonetics said this is a match made in heaven due to Alcatel's market-leading wireline broadband access deployment and Lucent's CDMA strength.

However, "if Alcatel thinks they will change the leadership of the next-gen voice landscape by merging with Lucent, they are misguided," said Stéphane Téral, another Infonetics analyst. The combined Alcatel-Lucent company will be in sixth place behind market leader Nortel and Siemens.

Partridge sees Nortel as likely the next merger. Nortel faces the same challenges as Lucent.

"As observers, it would be foolish not to see challenges," Partridge told internetnews.com. Among the potential stumbling blocks: the Franco-American culture shock, job cuts and a climate against foreign investment in the U.S.

Partridge said Lucent enhanced its attractiveness as a merger candidate by bringing in new management and investing in VoIP, 3G and broadband. "They got their business in order and made some good bets in technologies," said Partridge.

The merger would make the new company the "dominant wireline equipment supplier in both North America and Europe," according to Partridge. Still, the union would produce only a medium-sized telecom player above Ericsson but below Cisco.

Only after several years spent combining and integrating the two companies will the consolidated giant be felt in the industry, said Partridge.

Still, there will be some growing pains. "This is like moving two elephants," said Juan Fernandez, a Gartner analyst. "No matter how well you move it, there's still tons of weight."

Possibly the trickiest footwork involves the French composition of the new company. Although the business will have a North American office, the telecom giant will be based in France.

While Lucent CEO Patricia Russo will be CEO of the merged organization, Alcatel CEO Serge Tchuruk will be a chairman. Additionally, the arrangement requires two other directors to be European nationals. The company stock will be listed in France, as well. Naming an American as the CEO may be just symbolic, said Partridge.

Countering any image of a European and American culture clash, the two companies view themselves as international, according to Lucent spokesperson Joan Campion.

Labor will be another potential for problems.

About 10 percent, or 8,800 employees, will be laid-off. Lucent could not answer which percentage of the job losses will be borne by the U.S. company, but French laws tightly control when employers can fire workers.

With 235,000 Lucent retired workers and a $35 billion pension fund, the Lucent Retirees Organization last week voiced concern a merger could jeopardize health care benefits.

Lucent will live up to its legal requirements to retirees, according to Campion. The retiree group said it would ask Congress for legislation to protect the benefits if Lucent doesn't uphold the pension. The Communications Workers of America said it would hold off supporting the deal until it meets with Lucent executives. Campion refused to comment whether a meeting is planned.

Although France is not an Arab state, politicians could see the deal as another Dubai ports affair, according to Fernandez.

"Lucent might be painted a national icon," Fernandez said.

Lucent spun-off from Bell Labs in 1996. Anticipating a possible government uproar, Lucent created a subsidiary to conduct contracts deemed of a "sensitive nature."

This merger will not go smoothly, predicts Fernandez. "It would be a miracle if it did."