Alcatel to Acquire Lucent Technologies?

Parlez-vous français? Lucent Technologies may soon if French
telecommunications equipment maker Alcatel has its way. According to a
report by The New York Times, Alcatel has been conducting high-level
talks with Lucent for more than a month as it probes the possibility of
acquiring the company.

Now, according to executives close to the discussions quoted by the Times,
the companies are closing on a decision as to whether or not to proceed with
formal negotiations. An announcement could come within the next week, and
the executives said the odds of a merger are about 50-50.

The deal the companies are reportedly discussing is a nearly all-stock
transaction representing about a 20 percent premium over Lucent’s current
value of $33.5 billion. Alcatel, which has managed to weather the economic
storm better than U.S. equipment makers, is not much bigger than Lucent; it
is currently valued at about $39.5 billion.

Alcatel initiated talks with Lucent over the sale of Lucent’s fiber optic
cable business, which the company hoped to sell for more than $5 billion to
finance its debt. But Alcatel has been eagerly eyeing the lucrative U.S.
market, and with Lucent’s stock down some 82 percent from its high of $77.78
per share, the talks became much more ambitious.

Lucent, spun off from Ma Bell in 1996, is one leg of the triumvirate of
switch-makers — together with Nortel Networks and Cisco Systems — that
dominates the U.S. market. As an added bonus, when AT&T spun-off the
company, it took Bell Labs with it. Bell Labs is one of the most respected
research laboratories in the U.S., credited with helping to create both the
transistor and the LASER.

But while the deal would instantly give Alcatel deep penetration of the U.S.
market and solve Lucent’s debt problems, there are significant stumbling
blocks.

Lucent’s board may be unwilling to sell with the company’s stock price is so
far from its high. Lucent was trading at $10.05 per share in
late morning trading Friday. Both companies are also reportedly worried that
Lucent’s shareholders in the U.S. may flee the stock if the transaction is
successful, lowering the value of the combined company.

Additionally, regulators may look askance at the prospect of a foreign
company getting its hands on Bell Labs. Some legislators opposed Deutsche
Telekom’s acquisition of VoiceStream Communications, saying it was bad
policy for a company controlled by a foreign government to have control of
an American phone company.

Alcatel reportedly still plans to make a play for Lucent’s fiber optic cable
business if the larger transaction falls through. Pirelli, of Italy, has
also reportedly expressed interest in that business.

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