France's Alcatel may buy Lucent

U.S. firm reportedly weighs $13 billion bid

Alcatel reportedly seeks to buy Lucent

March 24, 2006|By NEW YORK TIMES NEWS SERVICE

Lucent Technologies Inc., the phone equipment maker that became a symbol of the previous decade's boom and bust in telecommunications, is in negotiations to be acquired by Alcatel of France for more than $13 billion, people close to the discussions said last night.

After several years of mergers on a huge scale among telephone companies -- local, long-distance and wireless -- a deal for Lucent would be the first big step toward a shakeout among the companies that make the equipment for the phone service providers.

And the prospect of a big trans-Atlantic deal comes at a time when foreign takeovers have been political flash points in both Washington and Paris. A Dubai company's acquisition of some U.S. port terminal operations sparked an uproar among congressional lawmakers, while the French government has sought to thwart cross-border takeovers in energy and pharmaceuticals.

People involved in the current talks said the negotiations had advanced in the past week, but warned that they could still fall apart. These people said that the disclosure of the talks could delay or derail any such deal.

The talks come nearly five years after the two companies called off what would have been a $22.8 billion merger at that time. That aborted deal had been viewed as a merger of equals but fell apart after the companies could not agree on how much control Alcatel would have.

For Lucent, which has its headquarters in Murray Hill, N.J., a sale would be the last chapter in an extraordinary story of boom, bust and struggle.

In 2002, the company was on the brink of collapse, but survived by slashing thousands of jobs and billions of dollars in debt.

Yet as Lucent has returned to profitability, the telecommunications landscape in the United States has radically changed. Lucent has lost many of its largest customers as regional phone companies have gobbled up rivals, slashed investment in their older copper-line networks and spent more on fiber-optic equipment that has fallen in price.

To Alcatel, Lucent's most valuable asset would be its CDMA wireless technology used by Verizon Wireless and Sprint Nextel, the second- and third-largest cell phone companies in the United States. Though only about a third of mobile phone subscribers worldwide rely on this technology, Verizon and Sprint have spent heavily to upgrade their networks to provide more next-generation data services.

Lucent's wireless business would complement Alcatel's leadership in broadband equipment, fiber-optic networks and Internet television, all of which are growing quickly.

Lucent's leading position in the American market would also dovetail with Alcatel's strength in Europe.

Though Alcatel would be eager to obtain Lucent's clients and leading position in the CDMA market, it may also inherit some of the company's problems. Growth overseas has been uneven. For instance, the company's sales in the last three months of 2005 fell more than 15 percent in part because of weak demand in China.

Lucent's roots go back to the age of the telegraph. It was the equipment-making arm of American Telephone & Telegraph, and included the research and development unit Bell Laboratories.

AT&T spun off Lucent in a $3 billion initial public offering in 1996.

The stock quickly became a Wall Street favorite, rising to more than $63 a share and surpassing AT&T in market value by 1998.

In 2000, the company was caught wrong-footed by a sudden slowdown in demand for communications equipment and reported a series of disappointing quarterly results. Its chairman and chief executive was ousted, and the Securities and Exchange Commission began an investigation into its accounting practices.

Its stock -- which made up the nest eggs of thousands of Lucent employees -- slid to a low of 58 cents in 2002.

Patricia F. Russo was named chief executive that year, and pulled the company back from the brink of collapse. But the recovery has been anything but robust, and Lucent's shares closed yesterday at $2.82.

Alcatel, based in Paris, makes half its sales in Europe, but has been making a big push in Asia and North America.

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