Lucent deal may spark mergers

March 25, 2006|By JON VAN | JON VAN,CHICAGO TRIBUNE

CHICAGO -- Merger talks between Lucent Technologies Inc. and French telecom firm Alcatel SA probably are a prelude to several deals among telecom equipment firms, industry observers said yesterday.

Faced with the pending merger of AT&T Inc. and BellSouth Corp., vendors may seek mergers to counterbalance the growing market power of their largest customers.

"If customers consolidate, equipment suppliers will consolidate," said Krish A. Prabhu, chief executive of phone equipment supplier Tellabs Inc. "This is going to happen." Prabhu said a Lucent-Alcatel merger would have no direct effect on his company.

Lucent, which employs more than 30,000 people worldwide, balked at merging with Alcatel five years ago over the prospect of losing control.

Alcatel reportedly has offered at least $12.6 billion for Lucent, though both companies say their talks are aimed at producing "a merger of equals" with a market capitalization of $34 billion. But analysts said it would leave the much larger Alcatel in the driver's seat.

The market showed some initial enthusiasm for the deal. Lucent's shares rose 24 cents, or 8.5 percent, to close at $3.06. Alcatel's U.S. shares gained 25 cents, to $15.70. Both trade on the New York Stock Exchange.

"Lucent has known for some time that it needed to get bigger to have a better bargaining position," said George M. Calhoun, a management professor at the Stevens Institute of Technology.

Calhoun said if Alcatel and Lucent combine, it's likely that Lucent would continue to operate much as it does now because the French company is looking to increase its penetration of the North American market.

"I can't see them making a merger and then not taking advantage of Lucent's strengths," he said.

As big phone carriers get bigger, they're also coping with an avalanche of new technology that's transforming telecommunications. Internet-based platforms and wireless phones are converging in ways that require carriers to continually upgrade and reconfigure networks.

Jon Van writes for the Chicago Tribune.

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