• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

A Telecom Merger Ripple Effect? Lucent and Alcatel Combining Could Have Huge Implications in the Chicago Area

Posted on: Thursday, 30 March 2006, 21:00 CST

By Anna Marie Kukec Daily Herald Business Writer

A merger between Alcatel and rival Lucent Technologies Inc. could create a stronger company that would boost the wireless industry and provide stiffer competition to other equipment makers, including Motorola Inc. and Tellabs Inc.

A ripple effect could lead to a shakeout of telecommunications equipment makers worldwide. Also, it could domino onto related vendors and businesses and, ultimately, the employees, analysts said.

"Companies like Motorola will not like the idea because it will mean a competitor will get bigger and stronger and have much better numbers," said telecom analyst Jeff Kagan.

Word of merger talks broke late Thursday and was confirmed by the companies.

"There can be no assurances that any agreement will be reached or that a transaction will be consummated," a joint statement said, adding that there would be no further comment until talks conclude.

Wall Street cheered the news. Lucent closed at $3.06, up 24 cents; Alcatel closed at $15.70, up 25 cents.

The Wall Street Journal reported that Patricia Russo, chief executive officer of Murray Hill, N.J.-based Lucent, likely would lead the merged company, while Paris-based Alcatel's CEO retires.

While the companies spoke of a potential merger of equals, The New York Times said Alcatel would be taking control of the smaller Lucent in a deal worth around $12.6 billion. Russo's ascension to CEO might help smooth over questions of control that scuttled attempts at a merger in 2001.

For the Chicago region, any deal could have major ramifications. The area is a hub for telecommunications equipment suppliers, with Motorola, Lucent and Tellabs among the suburbs' biggest employers.

Lucent spokesman William Price declined Friday to discuss any potential impact on Lucent's operations in Naperville and Lisle, which focus heavily on wireless research, products and applications.

Lucent's workforce already has dwindled since 2001 from around 106,000 worldwide, including 10,500 in Naperville and Lisle. As of Dec. 31, Lucent had 30,200 employees worldwide, including about 5,200 in Naperville and Lisle.

Lucent has a lot of baggage caused by ongoing streamlining, including dealing with angry retirees who have been losing medical and pension benefits and pressure from stockholders eager for higher profits.

Krish Prabhu, a former CEO of Alcatel's U.S. operations and now CEO of Tellabs in Naperville, said in a statement that a Lucent- Alcatel merger "doesn't hurt or help Tellabs."

Prabhu, whose company also has been cutting its workforce, said such mergers are a growing trend in the industry, given mergers among phone companies.

In the last 18 months, Verizon has bought MCI, Sprint has bought Nextel and the former SBC has bought AT&T and now is buying BellSouth.

"If customers consolidate, then equipment suppliers will consolidate," Prabhu said. "We think this will happen. It is inevitable."

Lucent and Alcatel came close to merging in 2001. More recently, rumors have circulated on Wall Street about the possibility of a Motorola-Lucent merger. Friday, Kenneth Muth, an analyst with Robert W. Baird & Co. Inc., said he'd like to see Motorola buy Tellabs, which would boost Motorola's network equipment for its growing handset line.

A Motorola spokeswoman declined to comment.

An industry shakeout among the telecommunication equipment giants won't happen overnight. In the case of Lucent and Alcatel, for example, completing a merger could take a year or more because of complicated laws in France and the United States, Muth said.

Because the two companies have complementary product lines, employee cuts after a merger would be limited, analysts said.

Alcatel likely would not touch jobs in Lucent's mobility division in Naperville, Muth said.

"They're safer in Naperville because mobility is the crown jewel of Lucent and that's what Alcatel wants," he said.

Carmi Levy, senior research analyst with Info-Tech Research Group, said a Lucent-Alcatel merger would be good for customers and the industry.

"Companies make these plays in the first place because acquisitions are the best way to bulk up and meet the needs of the market," Levy said.

Albert Lin, director of research at American Technology Research, said a merger could address Lucent's weaknesses.

Lucent has underinvested in pico-base stations, which provide enhanced wireless coverage inside office buildings, college campuses, subways and airports, he said.

With the success that Nokia has had with its "Flexi" base station, there is high demand for such products, especially in developing markets, he said.

"Many at Lucent have been pushing for research and development increases to fund this type of product, but due to the lack of early revenues to match the expenses, efforts have been slowed," he said.

"Now it is critical that Lucent or Alacatel, or whoever acquires Lucent, begin serious R&D work for this type of product or the opportunity for growth in market share for 3G equipment may be lost."

Source: Daily Herald; Arlington Heights, Ill.

More News in this Category