Alcatel and Lucent in USD34bn merger talks

24-03-2006

by Ciara O'Brien

Telecoms equipment maker Lucent has confirmed that it is in talks with rival Alcatel over a possible USD34 billion merger.

The merger, if it goes ahead, will be one of equals, but at USD13 billion (STG7 billion) Lucent is valued at considerably less than Alcatel's EUR19 billion (STG13 billion). This has led to speculation that Lucent will be the less dominant partner if a deal is brokered.

The companies, for their part, are refusing to promise anything. Instead, they have said that there is no guarantee an agreement will be reached, and have indicated that there will be no further comment until the discussions close.

A joint statement from the firms confirmed that any deal struck would be "at market price".

Combined, the two companies would be a serious player in the global telecoms equipment market; Lucent has an expansive presence in the US, while Alcatel is strong in the European and Asian markets.

The possibility of this latest transatlantic merger comes only weeks after the French government found itself embroiled in a row over government intervention in mergers and acquisitions. A recent acquisition announcement involving energy firms Gaz de France and Suez sparked a row after government-sponsored talks brokered a deal between the two.

The deal effectively headed off a bid from Italian firm Enel, and has led to speculation that France may have broken EU law. European Commissioners are currently looking into the case.

However, this is not the first time a merger between Alcatel and Lucent has been put forward; five years ago, a similar attempt failed.

Those talks ended when Lucent chairman Henry Schacht walked out of negotiations, following Alcatel chief executive officer Serge Tchuruk's refusal to give the firm equal weight in the proposed new company management.

Alcatel was reported to be reluctant to give Lucent equal representation on the board or an equal say in the management of the proposed new company.

However, the current tough conditions in the telecoms markets have seen Lucent's sales more than halve since 2001, while Alcatel has suffered almost as much. Ongoing consolidation in the telecoms market may also put pressure on the firms to close the deal; recent mergers in the sector include US firm AT&T's acquisition of Bellsouth.