Alcatel to buy Lucent for US$13bn

PARIS/PHILADELPHIA - French communications-equipment maker Alcatel said on Sunday it would buy smaller US rival Lucent Technologies Inc. for US$13.4 billion ($21.7bn) to gain more market heft and broaden its product mix.

Together, the companies will have more power to negotiate prices with their telephone company customers, which have resumed a wave of mergers, and a broader research and development base.

"As we looked at this there is no question this is an R&D issue. Competition is increasing and size and scale really matter," said Lucent's Chief Executive Patricia Russo, who will serve as CEO of the combined Paris-based company, although she does not speak French.

The transaction comes five years after the companies first discussed a merger, but those talks broke down in 2001 after Lucent balked at the idea of a takeover, rather than a so-called "merger of equals."

Alcatel now would own 60 per cent of the combined company, which will have total revenue of US$25 billion. It expects the deal to boost earnings per share in the first year, excluding restructuring charges.

The companies plan to cut about 10 per cent of their combined work force, or about 8,800 jobs. The cuts would be "fair and balanced" across geographic regions and business sectors, Lucent said.

Alcatel Chairman and Chief Executive Serge Tchuruk would be nonexecutive chairman. The two companies will have equal representation on the board of directors, with two additional independent European directors.

With the deal, Lucent would gain a stronger partner after struggling to cut costs and restructure after customers curtailed spending after the burst of the internet bubble, analysts said.

Alcatel, which has expertise in high-speed digital subscriber line (DSL) technology, would gain Lucent's dominance in wireless technology and contracts with carriers such as Verizon Communications.

Alcatel also gets Bell Labs, Lucent's historic research arm, which has invented key technology ranging from the transistors and lasers to cellular telephone technology, data networking and communications satellites.

"The question for Alcatel/Lucent is, can they put this company together without a lot of integration risks?" UBS analyst Nikos Theodosopoulos said.

Lucent said it would create an independent unit to oversee sensitive contracts with the US government. The subsidiary would be separately managed by a board composed of three US citizens "acceptable to the US government," Russo said.

Lucent's government work includes an advanced communications system for the Defence Advanced Research Projects Agency, the Pentagon's technology incubator.

"I don't think there's any rational reason for anyone to oppose this deal. But rationality and politics are two different things. It doesn't mean that this deal doesn't become a political football," said Stephen Kamman, an analyst with CIBC World Markets.

Several recent deals with international companies have raised national security concerns among US lawmakers. Most recently, state owned Arab company Dubai Ports World agreed to transfer operation of six US port terminals to a US entity to defuse a political firestorm.

China's Lenovo Group last year submitted to undisclosed conditions to win approved from the Committee on Foreign Investment in the United States, or CFIUS, to acquire IBM's personal computer business.

- REUTERS