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Alcatel and Lucent do the deed

Merger of almost equals

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Alcatel SA and Lucent Technologies have decided to shack up. The two companies have announced a $13.4bn stock swap deal meant to create a stronger, braver, more cost-effective telecommunications giant.

Alcatel and Lucent have explored the idea of a merger before, with 2001 talks gaining some attention. Then, late last month, the two companies confirmed they were close to reaching a deal.

One hang up about an Alcatel/Lucent tie-up has been the idea that God-fearing Americans would perceive Lucent as being taken over by Alcatel rather than merging with the French giant. Lucent was once part of AT&T and runs Bell Laboratories - a storied American research institution and birthplace of the transistor, among many other things.

So, Alcatel and Lucent have worked hard to bill this as a "merger of equals" even thought it isn't.

"The combined company created by this merger of equals is incorporated in France, with executive offices located in Paris," the companies said in a statement. The merger of equals phrasing is repeated elsewhere in the statement.

In reality, Alcatel shareholders will own close to 60 per cent of the combined company expected to have $25bn in annual sales. Lucent shareholders will take the remaining 40 per cent stake and receive 0.1952 of an Alcatel American Depositary Share for each common share of Lucent.

The company hasn't settled on a new name as yet, but could perhaps call in former HP CEO Carly Fiorina for help. While working at AT&T, Fiorina brought Lucent to life, picking out the company's monicker and logo and selling it to Wall Street. Lucent's $3bn April 1996 IPO was the biggest one in history to that point.

The combined company will have US operations based out of New Jersey, Lucent's current home, and will be run by Lucent CEO Patricia Russo. Alcatel chairman and CEO Serge Tchuruk has accepted the role of non-executive chairman.

"The board of directors of the combined company will be composed of 14 members and will have equal representation from each company, including Tchuruk and Russo, five of Alcatel's current directors and five of Lucent's current directors," the companies said. "The board will also include two new independent European directors to be mutually agreed upon."

The new company should have a market capitalization of close to $36bn and employ 88,000 workers. Of course, about 10 per cent of the employees will be let go once the deal closes in a cost-cutting move (that'll be interesting to watch to say the least. Start honing your nationalistic inclinations now).

It will also have Bell Labs operate as a separate subsidiary run by three American citizens in order to keep government customers happy.

This giant will have to slog it out in a telecommunications equipment market that has proved none too pleasant over the past few years. Life seemed tough enough on the two companies without forcing them to merge over the Atlantic. This, however, is all about cost-savings and might, we are told.

Shareholders and regulators should have a field day. The two companies have penciled in quite the cushion to close the deal, expecting it to take anywhere between six months to a year to finalize.

The deal, of course, could be slowed when Alcatel workers refuse to provide Lucent executives with directions to the company's headquarters. ®

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