In merger talks again

Five years later, they are again in talks. Lucent Technologies and French telecoms equipment maker Alcatel AG have announced they are in talks for a possible US$34 billion merger.

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By  Angela Sutherland Published  April 2, 2006

|~||~||~|Five years later, they are again in talks. Lucent Technologies and French telecoms equipment maker Alcatel have announced they are in talks for a possible US$34 billion merger. In a joint statement the vendors say: “We can confirm that Lucent and Alcatel are engaged in discussions about a potential merger of equals that is intended to be priced at market. There can be no assurances that any agreement will be reached or that a transaction will be consummated. We will have no further comment until an agreement is reached or the discussions are terminated.” However, it remains to be seen if this merger will go through. This is not the first time the two vendors have entered into consolidation talks. In 2001, Lucent and Alcatel were on the verge of closing a US$23.5 billion merger but it fell through. 2006 will be a stable and vibrant year. Market researcher IDC predicts worldwide IT spending to increase by 6.3%, as economic stability in the US, Europe and Japan combines with continued robust growth in emerging markets. Looking at the market, the merger may not be a bad idea. The move will benefit both the parties. For instance, the merger will allow Alcatel to secure a larger foothold in the US telecoms market and Lucent, which has had its share of ups and downs in its ten-year history, to make a fresh start. Furthermore, it has not been plain sailing for Alcatel, which has suffered some hard times. Now that Alcatel has got its affairs in order, the company is seriously looking at exploiting the triple-play television, internet and telephone space. With the help of Lucent, Alcatel will be in a position to make a serious inroad into that segment of the market. Although the communications equipment market is long overdue for consolidation, and the two vendors make a relatively good fit with minimal duplications of products, the industry remains sceptical about the proposed merger. And there are several reasons for this scepticism. Firstly, people have not forgotten about the failed merger of 2001. Secondly, they have reservations about the financial solidarity of the merged entity. People are questioning the benefits of Alcatel’s merger with the networking vendor. Alcatel’s trading on the stock exchange is also not favourable. For instance, two weeks ago, Alcatel shares closed at 1.9%, after gaining 1.56%, days after the news of the merger was made public. There is also the issue of security. Lucent’s Bell lab conducts research on highly sensitive military communications for the US government. The authorities may not look at the foreign ownership of such an organisation favourably. In addition, media reports say Alcatel is seeking to appoint two independent European directors, which will delay the merger talks. Since Alcatel shareholders will control more than 60% of the new entity, the French are not too keen to accept a 50-50 split of directors. Whatever the outcome of this proposed merger, the talks are already clouded, and the industry has strong reservations about this consolidation. ||**||

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