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France's Alcatel to Buy Lucent

The deal would create a telecom equipment maker with annual sales of about $25 billion.

April 03, 2006|From the Associated Press

PARIS — Alcatel and Lucent Technologies Inc. said Sunday that the French telecom equipment maker would acquire its smaller U.S. rival in a $13.4-billion stock swap that would form a major new global player. About 8,800 jobs would be cut.

The company, to be based in Paris, would have annual sales of $25 billion -- close to the 2005 revenue posted by the world's largest network provider, Cisco Systems Inc. of San Jose. The combined Alcatel and Lucent would generate $1.7 billion of savings within three years, the companies said.

In a move apparently aimed at addressing any U.S. security concerns about Bell Labs -- Lucent's research arm, which does sensitive work for the Pentagon -- the companies said they planned to form an independent American subsidiary holding contracts with U.S. government agencies.

The unit would be separately managed by a board of three U.S. citizens acceptable to the U.S. government, the companies said.

Alcatel and Lucent, whose combination remains subject to shareholder and regulatory approval, expect to cut costs by consolidating support functions, leveraging research and development and services across a larger base and cutting about 10% of their combined worldwide workforces.

The companies said the deal would allow them to better combat the 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 that a tie-up by the two would be a good fit and that the combined company would be better able to resist pricing pressures from the larger telecom service providers emerging from a new wave of consolidation in the sector.

The combined company, whose name is to be decided at a later date, would be led by Patricia Russo, the current chief executive of Lucent, the companies said in a joint statement. Alcatel Chairman and CEO Serge Tchuruk would become nonexecutive chairman.

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

Though the companies called the deal a "merger of equals," under terms of the transaction Alcatel shareholders would hold about 60% of the new company and Lucent shareholders about 40%, the companies said. Lucent shareholders would receive 0.1952 of an Alcatel American depositary share for each common share they own.

Paris-based Alcatel has more revenue and employees, but Lucent, based in Murray Hill, N.J., is slightly more profitable. The companies did not give details on 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 in return for increasing its stake in the French defense electronics company to about 25% from the current 10%.

The Thales deal, designed to answer French government concerns over sensitive military technologies, hit a snag when European Aeronautic Defense & Space Co. intervened -- with the reported backing of French President Jacques Chirac -- to demand that its own Astrium satellite unit be included in the operation.

But the satellite deal between Alcatel and Thales is now poised to go ahead without EADS, a person familiar with the talks said.

Alcatel and Lucent said March 23 that they were negotiating to combine.

The deal has been approved by the boards of each company and requires regulatory and governmental reviews in the United States, Europe and elsewhere, as well as the approval of shareholders of both companies. Lucent and Alcatel said they expected to complete the deal in six to 12 months.

Alcatel shares closed down 1.5% at 12.77 euros Friday, and Lucent fell 4 cents, or 1.3%, to $3.05.

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