Lucent negotiations falter

May 30, 2001 Merger talks between French telecommunications giant Alcatel SA and Lucent Technologies Inc. were called off Tuesday after intense negotiations over the long holiday weekend failed to yield an agreement.

May 30, 2001 Merger talks between French telecommunications giant Alcatel (www.alcatel.com) SA and Lucent Technologies Inc. (www.lucent.com) were called off Tuesday after intense negotiations over the long holiday weekend failed to yield an agreement.

In a statement, both companies said that the negotiations in Paris had failed, but didn't disclose why they ended the talks.

Sources close to the negotiations said issues over corporate governance and management of the combined company were the main roadblocks preventing a deal that would have led to one of the largest takeovers of a U.S. technology group by a European company.

But Lucent officials balked because they did not believe that Alcatel was treating the deal as a merger of equals.

"Lucent was negotiating a merger, not an acquisition, and when it became clear that was not the way things were going the company decided to pursue its own path," said one source, who spoke on condition of anonymity.

Another source said Lucent wanted equal representation among the combined company's senior managers and on its board, but Alcatel would not agree to those terms.

Analysts had said the new company would have a work force of more than 200,000 but would probably have had to cut 20,000 to 30,000 jobs to trim costs.

Since January, financially plagued Lucent has announced plans to reduce its work force by as many as 16,000 jobs as it streamlines operations and sells off some of its factories.

Analyst Steven Koffler of First Union Securities said Lucent faces an uncertain future without the backing Alcatel would have provided. "This is going to be tough because of a lot of internal problems they're having and because of the state of the industry right now," he said. News reports set Lucent's price at between $23.5 billion and $32 billion.

The Wall Street Journal reported that the talks centered on a deal at the lower price that would have excluded Lucent's 58 percent stake in Lucent subsidiary Agere Systems, a maker of semiconductors used in communications systems.

Murray Hill, N.J.-based Lucent, which was spun off from AT&T Corp. in 1996, is the second-most widely owned stock in America, owned by 5.4 million investors. The first is insurer MetLife.

Lucent's research arm, formerly known as Bell Labs, has been a wellspring of U.S. technological innovation over the years. Its 30,000 scientists have had a role in developing such landmark inventions as the transistor, the laser and superconductors.

But Lucent has fallen on hard times amid a string of strategic missteps and profit disappointments that led to the ouster of chief executive Richard McGinn and a major restructuring. The company's shares are hovering at about one-tenth of their all-time high hit in late 1999.

What made the "deal possible is that Lucent is weakened, both financially and strategically," said Jean-Claude Delcroix, a Brussels-based telecommunications expert at technology research firm Gartner. "It made poor investment decisions in the past, while its strategic vision for the future has floundered."

Analysts said that a deal by Alcatel, which chief executive Serge Tchuruk has built into a diversified maker of cell phones, high-speed telecommunications equipment and Internet switches, would have made it a major player in the U.S. market.

More than half of Alcatel's sales are in Europe, while 23 percent of its revenue comes from the United States.

In trading Tuesday afternoon on the New York Stock Exchange, Lucent shares were down 11.5 percent, or $1.08, to close at $8.32 a share, while Alcatel's U.S. shares were down 70 cents, or 2.5 percent, at $27.41. In extended trading Lucent shares rose 2.5 percent, or 21 cents, at $8.53 a share, while Alcatel's U.S. shares were up $1.59, or 5.8 percent, at $29.

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