Alcatel to buy Lucent
French telephone equipment maker Alcatel SA announced today it has agreed to buy out US phone equipment maker Lucent Technologies (owner of Bell Labs). The $13.4 billion dollar deal will make for a giant in its market segment (yearly revenue of $25 billion), a bit more than Cisco Systems. That assumes that stockholders and regulators approve of the deal. Most of Lucent's business is in the US, while Alcatel's markets are in Europe, the Middle East, and Africa.
One antitrust concern is that the US government might be worried about foreign ownership for Lucent, which des considerable US defense work. Alcatel has said that the US defense divisions will be made into a semi-autonomous company.
The two companies tried to merge in 2001, but the deal fell apart. Lucent nearly disappeared a few years ago, but it has been resuscitated by current management. The company has shown a small profit over the last few years.
This deal is based on $1.7 billion in "synergies", most notably the loss of almost 9,000 jobs. Both companies have extensive background in layoffs and buyoffs as each has gone through some rocky years. But Alcatel's layoffs have mostly been outside France. Strong labor resistance to mass layoffs may mean the US employees take the brunt of cutbacks.
The merger seems inevitable given the shrinking role of land-line telephone technology that both companies have specialized, all thanks to wireless and now Internet telephony. In addition, there are fewer. Another problem comes from more demanding customers due to M&As among the phone companies, a classic case of concentration at one level in an industry prompting further deals on another level, in self-defense.
That case is laid out Wall Street Journal story ("Alcatel's Merger With Lucent Stirs Culture Questions," 4/3/06):
The deal is a clear sign that the merger trend that swept operators of telecom networks in recent years is spilling over into the equipment industry, amid growing competition in the equipment market. New Chinese companies like Huawei Technologies Co. and ZTE Corp. are gaining market share by cutting prices. Customers also are being lured away by telephone systems operating on Internet technology sold by Cisco Systems Inc. and others.
It is generally considered that smaller rivals such as Sycamore Networks, Ciena, Nortel, and Tellabs are going to feel the pressure to acquire, be acquired, or get out of the business. Companies like Siemens and Motorola are tagged as likely acquirers. As an Economic Times article ("Lucent-Alcatel deal likely to ring in a shakeout", 4/4/06) points out:
Since news of the merger plan broke on March 24, speculation has been rampant that these smaller companies will be the next ones up for sale, especially as the difficulty of staying in the game increases with such big competitors.
