Lucent Pursues French Connection

By eweek  |  Posted 2001-05-28

Lucent Technologies last week landed a DSL deal with the only regional Bell that Alcatel had failed to win, and that could make the courtship of the two equipment behemoths just sweet enough to make a marriage.

The two companies were intensifying talks during the weekend, with predictions that a deal could be done by this week. If the talks succeed, observers said, Alcatel may acquire Lucent in a stock deal worth roughly $34 billion — Lucents current valuation.

An Alcatel-Lucent merger could push Nortel Networks to seek a merger with Ericsson or another European vendor, so it could match the strength of reaching both the North American and global markets in dozens of spaces, said Blaik Kirby, vice president at Boston consultancy Adventis.

A merger would "help Lucent sell equipment in the rest of the world, and give Alcatel a deeper U.S. portfolio," Kirby said.

An Alcatel-Lucent deal could spark other mergers, too, said Deb Mielke, principal at research firm Treillage Network Strategies.

There are plenty of reasons Alcatel would balk at acquiring Lucent and its mountains of debt and inventory. But Alcatel pines for three things from the former Bell Labs: Lucents U.S. customer base and its optical technology are two. The third is a DSL deal with Qwest Communications International, the only former regional Bell that hasnt announced a deal with the Paris vendor.

Last week, Lucent said it will be the major vendor as Qwest, which acquired U S West last year, steps up its DSL deployment in 11 states. Qwest plans to install DSL in an additional 2.5 million homes and small businesses by the end of next year.

Troubled Lucent has announced other wins this month: a deal with Global Crossing for wavelength routing and a deal with China Unicom for wireless technologies.

While Alcatel is the strongest global DSL player and has relationships with the Bells in that technology, Lucent is a much bigger supplier of legacy switches and optical technology to the former monopolies.

"There could be some good synergies in the North American customer base, but I have my doubts," said Brian Van Steen, an analyst at RHK. "Whenever large companies merge, there are a lot of issues that need to be overcome — a lot of deal-breakers."

Lucent may sell off some divisions to reduce its debt before Alcatel commits, Van Steen speculated. If the merger happens, carriers will have one less major vendor, and that will "leave possible inroads for some of the smaller guys," he said.

The combined company could be classified as an international firm, which means some portfolio managers would drop it from their lists. As a spin-off of AT&T, Lucent is one of the most common U.S. mutual fund stocks, even though its down 85 percent from its 52-week high. "On the other hand, a lot of Lucent stockholders will be glad to get Alcatel," Treillages Mielke said.

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