Alcatel, Lucent talks on merger intensify

Executives meeting in Paris on details of $34 billion deal

Stocks reflect skepticism


Merger talks between Alcatel of France and Lucent Technologies Inc. moved into their final stages yesterday as executives from the two communication equipment makers met in Paris to negotiate formal details of the transaction, executives close the discussions said.

In the surest sign yet that a decision on the $34 billion merger may be reached soon, the executives close to the talks said they are aiming to reach an agreement by next week. But the executives cautioned that both companies still could decide to abandon the deal.

Alcatel is in talks to acquire Lucent in a transaction that would be presented as a merger of equals, the executives said.

Alcatel is not expected to pay much more for Lucent than its market value, the executives said. They said they are discussing a "no premium" deal in which Alcatel officially would be the buyer by issuing its shares to Lucent, but each side would have equal representation in management. Discussions about a sale of Lucent to Alcatel grew out of talks over the sale of Lucent's fiber-optic cable business, which it hopes to sell for more than $5 billion to help reduce its debt.

Skepticism over the impact of a potential deal between the two companies continued to weigh on the share prices of both Alcatel and Lucent yesterday. Alcatel's American Depository Receipts fell 13 cents to $29.46, and Lucent's stock shed 13 cents to $9.53. Since the news that the companies were advancing their merger negotiations was learned a week ago, Alcatel shares have fallen 8 percent and Lucent has declined 3 percent.

Concern over the short-term effects of a deal centers on its potential to dilute shareholders in Alcatel and deprive Lucent's shareholders of the potential of near-term gains if a merger came to fruition. But other analyses have appeared that support a deal.

If Alcatel and Lucent were to merge, the combined company could gain some geographical advantages. For example, a report by Global Equities, a Paris-based investment adviser, said that a merger would allow Alcatel to expand in the United States and Japan, where Lucent is stronger, and Lucent to grow in China, where Alcatel has extensive dealings, according

The companies also could complement each other with their offerings of mobile communications equipment. Alcatel is stronger in Europe, where the global system for mobile communications, or GSM, wireless standard has almost completely blanketed the continent. Lucent has had more success selling code division multiple access, or CDMA, technology in the United States, China and South Korea.

Still, concern persists over Alcatel's ability to efficiently absorb Lucent, which has more than 90,000 employees, compared with Alcatel's 120,000.

There is also the question of the companies' different cultures, one grounded in America's entrepreneurial and research traditions, the other in a newfound corporate vibrancy that has pushed several French concerns to the forefront of the media and communications industries.

"A merger between the two would be a daunting task," Kurt Hellstrom, chief executive of Sweden's Ericsson, another large communications equipment company, said in an interview. "It is not something we would consider."

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