Alcatel, Lucent in Merger Talks Again

UPDATED:

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.

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