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Alcatel buys Lucent for US$13.4 billion

Alcatel SA will acquire US-based Lucent Technologies Inc in a US$13.4 billion stock swap to form a stronger player in the fiercely competitive telecom equipment market, the companies announced on Sunday. About 8,800 jobs will be cut.

The combined business, to be based in Paris, will make the most of fast-growing converged offerings such as "triple-play" Internet, phone and TV packages, the companies said. It will have annual sales of 21 billion euros (US$25 billion) -- ahead of LM Ericsson's 16.4 billion euros.

The tie-up will generate 1.4 billion euros in savings within three years, the companies said, with synergies coming from a 10 percent cut to the 88,000-strong combined global work force as well as from consolidated purchasing, support services and research and development.

The new firm -- whose new name is to be announced later -- should be better equipped to weather intense competition in the telecom equipment market.

"The primary driver of the combination is to generate significant growth in revenues and earnings based on the market opportunities for next-generation networks, services and applications," the companies said.

Analysts have said the tie-up is a good fit, as well as helping the combined company stand up to pricing pressures from larger telecom service providers emerging from a new wave of consolidation. Alcatel and Lucent had tried to merge once before, but talks ended without a deal in 2001.

The combined business will be led by Lucent CEO Patricia Russo, the companies said in a joint statement. Alcatel chairman and CEO Serge Tchuruk will become non-executive chairman.

The 14-member board of directors will include Russo, Tchuruk, five of the current directors from each company and two new independent European directors to be mutually agreed upon, the two companies said.

Though Lucent and Alcatel described the deal a "merger of equals," Alcatel shareholders will hold about 60 percent of the new company and Lucent shareholders 40 percent under the terms of the transaction.

Lucent shareholders will receive 0.1952 of an Alcatel American Depositary Share for each common share they own. Shares of Alcatel jumped 6.1 percent to 13.55 euros yesterday.

Lucent added US$0.08 to closed at US$3.13 yesterday, slightly above the offer value, but CFO John Kritzmacher said Lucent shares had risen recently on expectations of a deal.

"This is a very fair and equitable deal for Lucent shareholders and Alcatel shareholders," he said during a conference call.

Paris-based Alcatel has more revenues and employees, but Lucent, based in Murray Hill, New Jersey, is slightly more profitable. No details were given about where the job cuts would be, but Russo pledged to "take a fair and balanced approach as we manage our way through this."

The companies appeared to have resolved a standoff over Alcatel's satellite activities, which Alcatel had planned to transfer to Thales SA in return for increasing its stake in the French defense electronics company to about 25 percent from the current 10 percent.

In a move to address US security concerns about Bell Labs, the Lucent research arm that does sensitive work for the Pentagon, Alcatel and Lucent announced plans to form a separate, independent US subsidiary managed by a board of three US citizens vetted by the US government.

Alcatel and Lucent had said March 23 that they were negotiating a merger. The deal has been approved by the boards of each company and requires regulatory and governmental reviews in the US, Europe and elsewhere, as well as the approval of shareholders.

The deal is set to be completed in six to 12 months, officials said.
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