- The Washington Times - Sunday, April 2, 2006

PARIS (AP) — Alcatel SA will acquire U.S.-based Lucent Technologies Inc. in a $13.4 billion stock swap to form a stronger player in the fiercely competitive telecom equipment market, the companies announced yesterday. About 8,800 jobs will be cut.

The combined business, to be based in Paris, will make the most of fast-growing converged offerings such as “triple-play” Internet, phone and TV packages, the companies said. It will have annual sales of $25 billion — ahead of LM Ericsson’s $19.9 billion.

The merger will generate $1.7 billion in savings within three years, the companies said. The savings will come from a 10 percent cut to the 88,000-strong combined global work force as well as from consolidated purchasing, support services and research and development.

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.

Analysts have said the merger is a good fit and will help the combined company stand up to pricing pressures from larger telecom service providers emerging from a new wave of consolidation. Alcatel and Lucent had tried to merge once before, but talks ended without a deal in 2001.

The combined business will be led by Patricia Russo, chief executive officer of Lucent, the companies said. Alcatel Chairman and CEO Serge Tchuruk will become nonexecutive chairman.

The 14-member board of directors will consist of Ms. Russo, Mr. Tchuruk, five directors from each company and two new independent European directors to be chosen in a mutual agreement, the companies said.

Though Lucent and Alcatel described 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.

Lucent shareholders will receive 0.1952 of an Alcatel American Depositary Share for each common share they own — worth $3.01 at Alcatel’s Friday closing price of $15.40.

Lucent closed at $3.05 Friday, slightly above the offer value, but Chief Financial Officer John Kritzmacher said Lucent shares had risen recently on expectations of a deal.

“This is a very fair and equitable deal for Lucent shareholders and Alcatel shareholders,” he said during a conference call.

Paris-based Alcatel has more revenues and employees, but Lucent, based in Murray Hill, N.J., is slightly more profitable. No details were given about where the job cuts would be, but Ms. 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 SA in return for increasing its stake in the French defense electronics company to about 25 percent from the current 10 percent.

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

But the satellite deal between Alcatel and Thales is now poised to go ahead without EADS, a person familiar with the talks said, and Thales issued a statement to say it had called a board meeting for tomorrow to examine “a project aimed at developing Thales and strengthening the existing partnership between Thales and Alcatel.”

In a move to address U.S. security concerns about Bell Labs, the Lucent research arm that does sensitive work for the Pentagon, Alcatel and Lucent announced plans to form a separate, independent American subsidiary managed by a board of three American citizens vetted by the U.S. government.

Because of the recent Dubai ports controversy, rudential Equity Group analyst Inder Singh wrote in a research note, “we may see some lingering issues in Washington in regards to foreign investments.”

He expects an extended review by the U.S. Committee on Foreign Investment, but no major antitrust issues.Alcatel and Lucent had said March 23 that they were negotiating a merger.

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 in both companies.

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