Alcatel-Lucent merger pact may be signed on Wednesday

Jessica Hall

PHILADELPHIA: French telecommunications equipment maker Alcatel continued

negotiations to buy floundering US rival Lucent Technologies Inc. for about $32

billion (37.25 Euros) through the weekend and an agreement could be announced on

Wednesday, sources familiar with the situation said on Monday.

The two equipment manufacturers, who declined to comment, held negotiations

throughout the long holiday weekend and worked to settle final details, sources

said. The firms' boards are expected to vote on the deal on Tuesday, a source

said.

"There are still issues. How they get resolved, and if they get

resolved, remains to be seen," said another source. Lucent shareholders

would not receive a premium over the value of Lucent's stock price. Lucent,

however, would distribute its 20-per cent stake in Agere Systems Inc. to only

Lucent’s shareholders, the second source said.

The Agere distribution, which had been planned as part of Lucent's recent

spin-off of the optical components and semiconductor business, would provide a

small benefit for Lucent stockholders in lieu of a premium paid by Alcatel, that

source said.

Assuming final negotiations proceed successfully, the deal would likely be

announced on Wednesday - midday in Paris and before markets open in the United

States. The structure and timing of a deal still may change, sources cautioned.

Alcatel Chief Executive Serge Tchuruk would lead the combined company, while

Lucent chairman Henry Schacht would assume a lower but still senior position, a

source said.

The deal will be characterized as a so-called "merger of equals",

but sources said Alcatel clearly will be buying Lucent, which posted $4.7

billion in losses in the first half of its current fiscal year. Lucent, which

carries a massive debt load, has fallen behind rivals such as Nortel Networks

Corp. and Cisco Systems Inc. due to management turnover and product-development

missteps.

"It gives Lucent a clean slate to start over, and it gives Alcatel a big

foot in the door in the US marketplace," said independent

telecommunications analyst Jeffrey Kagan. "Alcatel has made no secret of

the fact that they want to become a powerful player in the US telecom

marketplace. They have launched an aggressive advertising campaign to increase

their awareness in the US marketplace and have very aggressive plans,"

Kagan said.

The combined firm is expected to be legally incorporated in Paris, but will

continue to be headquartered in Lucent's home of Murray Hill, New Jersey,

sources said. While Lucent will have a say in the appointment of board members,

the new firm may get a new name, rather than taking either the Alcatel or Lucent

brand names, sources said.

Although analysts expect the combined company to cut as many as 20,000 jobs

as part of their efforts to slash $4 billion a year in operating costs, one

source said no job cuts would be announced Wednesday. In addition to a strong US

presence, Alcatel also would gain Lucent's Bell Labs research and development

arm, as well as its expertise in CDMA (code division multiple access) wireless

technology, switching, transmission, and core network products. The CDMA

wireless technology competes with the GSM standard that dominates in Europe.

Alcatel, meanwhile, has strength in edge network products that connect long

haul to local networks, fiber optics, and digital subscriber line (DSL)

technology. A deal would face scrutiny from regulators in Washington, who would

examine anti-trust issues. Lucent's Bell Labs also does projects for the US

Government, which could be vital to US national security. Combining the French

and US firm also could be fraught with culture clashes and power struggles,

analysts have said.

(C) Reuters Limited 2001.