Lucent Technologies Inc, the No. 1 US maker of phone equipment, and France's Alcatel SA ended merger talks after Lucent declined to cede control of the combined company.
The companies said in a two-paragraph statement that talks "have been terminated." Lucent spokeswoman Mary Lou Ambrus and Alcatel spokesman Klaus Wustrack declined further comment.
Lucent Chief Executive Henry Schacht and Alcatel CEO Serge Tchuruk were unable to agree on management of the combined company, a person familiar with the talks said. Alcatel balked at Lucent's insistence that the company be run as a merger of equals, the person said.
"It would have been a lot of headaches," said Martin Pyykkonen, a telecommunications-equipment analyst at C.E. Unterberg, Towbin. "Who's really running the show would have been an issue."
Monday, the Wall Street Journal and New York Times said the companies were near agreement for Paris-based Alcatel to acquire Lucent for about US$23.5 billion in stock.
"Merging with a continuing leader like Alcatel would've helped put the valuable parts within Lucent back in the game faster than they would be under the current, distressed corporate structure," said Michael Cohen, who manages the Alpha Analytics Digital Future Fund and sold his Lucent stake this year.
"The merger would've been good for Lucent and bad for Alcatel."
Shares of Murray Hill, New Jersey-based Lucent fell 11 percent Monday on concern that the transaction offered no premium. Newspapers last week said Alcatel would offer to buy Lucent for about US$32 billion, its market value at the time.
"I think there really had been hope that they'd end up with some premium," said Tim Ghriskey, a money manager with Dreyfus Corp, which owns Lucent shares.
Lucent shares rose as much as US$0.25, or 2.5 percent, to 10.10 euros in Germany. The company's shares fell US$1.08 to US$8.32 in regular US trading Monday. Alcatel's shares rose as much as 1.65 euros Tuesday, or 5.4 percent, to 32.5 euros.
Alcatel and Lucent are only the latest companies to have merger talks stumble over disa-greements about running the new company.
In June 1999, Texaco Inc and Chevron Corp called off talks on an estimated US$37 billion merger when Chevron insisted its executives run operations. A year later, the companies revived the merger discussions.
Monsanto Co and American Home Products Corp canceled a US$35 billion merger in October 1998 when chief executive officers clashed over management styles.
The combination of Alcatel and Lucent would have created the biggest supplier of telecommunications gear, boosted Alcatel's presence in the US and helped Lucent stem recent losses.
Lucent lost more than US$4 billion in the first half of its fiscal year as demand for its products waned and the company took a bigger-than-expected charge for cutting jobs as well as product lines.
The company is shedding 16,000 jobs, and selling factories and businesses to trim US$2 billion in annual costs and narrow its focus to equipment and services used by large telecommunications carriers. Lucent plans to proceed with the sale of a unit that makes optical fiber and cable.
With talks to merge with Alcatel derailed, Lucent needs to slash expenses as quickly as possible, analysts said.
"The June quarter may be lackluster, and it's quite possible they're going to have to cut costs more deeply," said Josephthal & Co analyst Lawrence Harris, who rates Lucent a "hold."
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