Proposed Lucent, Alcatel Deal Falls Apart

Despite speculation as late as Tuesday morning that French telecommunications equipment maker Alcatel and Lucent
Technologies would announce a merger by Wednesday, the two firms crushed those rumors Tuesday afternoon.

In a release, the two companies confirmed that they had been in discussions
concerning a possible merger. However, the firms said “that these
discussions have not resulted in any agreements and have been terminated.”

The companies said they would issue no further comments.

The two companies had been in high-level talks for more than a month. They had reportedly been discussing the acquisition of Lucent by Alcatel — framed as a merger of equals — in an all-stock transaction representing about a 20 percent premium over Lucent’s current value of $33.5 billion.

But, according to the Wall Street Journal, Lucent was not keen on the fact that the deal might be seen as a takeover rather than a merger of equals, and pushed hard for strong representation on the board of the merged company. The Journal also reported that the deal the companies were discussing over the weekend would have offered no premium to Lucent’s shareholders.

The deal faced significant hurdles right from the start. When reports of a possible transaction first surfaced, there were immediately questions concerning the willingness of Lucent’s board to sell with the company’s stock price so far from its high. And regulatory approval was also a significant concern.

When Lucent spun off from Ma Bell in 1996, it took Bell Labs — one of the most respected research laboratories in the U.S., credited with helping to create both the transistor and the LASER — with it. But the thought of Bell Labs ending up under the control of a foreign company may have raised the hackles of some regulators. 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 first initiated talks with Lucent over the sale of Lucent’s fiber optic cable business, which the company hopes to sell for more than $5 billion to finance its debt. Earlier reports suggested Alcatel would still make a play for the fiber optic cable business, even if the larger deal fell through. Pirelli, of Italy, has also reportedly expressed interest in that business.

News Around the Web