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Alcatel to merge with Lucent

Mon., April 3, 2006

France’s Alcatel SA will acquire rival telecom equipment maker Lucent Technologies Inc. in a $13.4 billion stock swap that would form an industry powerhouse with a product line broad enough to entice customers in a consolidating telecom industry.

Company leaders said Sunday they plan to shed 10 percent of the combined work force – about 8,800 jobs – after the deal closes.

The combined business, to be based in Paris, will work to capitalize on fast-growing converged offerings such as “triple-play” Internet, phone and TV packages that have become popular in the telecom field, the companies said.

The new company will have annual sales of $25 billion – ahead of LM Ericsson’s $19.9 billion – and an 18 percent share of the fiercely competitive market for telecom gear.

The tie-up will generate annualized pretax savings of $1.7 billion within three years, the companies said. Slightly more than half the savings will come from job eliminations, with the rest by consolidating purchasing, research and development, and support services such as sales and marketing.

“Lucent was sooner or later going to have to do something to address the scale of their operations” to stay competitive, said George Calhoun, a business and technology professor at Stevens Institute of Technology. He said Alcatel needed “to become an A-list infrastructure company in the U.S. market.”

The new Alcatel-Lucent – whose new name is to be announced later – should be better equipped to weather intense competition in the telecom equipment market and pricing pressures from larger telecom service providers emerging from a new wave of consolidation.

The deal comes as the industry’s major U.S. customers have been rapidly consolidating the telecom field. In the past year, the former SBC Communications Inc. bought AT&T Corp., while Verizon Communications Inc. acquired MCI Inc. Last month, AT&T Inc. – the name SBC chose after buying AT&T – proposed a $67 billion deal for BellSouth Corp.

With about one-third of revenues coming each from North America, Europe and Asia, he wrote, the new company will have a geographic reach few competitors could match, likely forcing other mergers.

Though Lucent and Alcatel sought to depict the deal as 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.

The deal has been approved by the boards of both companies and requires regulatory and governmental reviews, plus approval from shareholders.


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