Alcatel drops on Lucent bid reports
Paper says group could pay $40 bln in stock and cash
By Francesca Gee, Peter Bale & Allen Wan
Last Update: 11:51 AM ET May 18, 2001
PARIS (FTMW) - Shares in French telecoms equipment maker Alcatel (FR:013000: news, alerts) dropped on Friday on reports it's in advanced talks to buy Lucent Technologies (LU: news, msgs, alerts) for as much as $40 billion, mostly in shares.
"I really do hope it's not true," said Susan Anthony of Credit Lyonnais, who rates Alcatel a "buy". "If there is one thing that would cause me to revise my opinion, that would be it."
Alcatel (ALA: news, msgs, alerts) shares fell 7 percent at €33.45 in Paris afternoon trading, bringing their decline since the beginning of the year to nearly 45 percent.
In New York Lucent rose almost 5 percent to $10.29.
An Alcatel spokeswoman declined to comment on a report, first in the New York Times, that Alcatel was offering more than $40 billion, almost entirely in stock. A Lucent spokeswoman also declined to comment. See CBSMarketWatch analysis.
Alcatel has already acknowledged it was eyeing some of Lucent's operations, although it had previously made no comment about bidding for the entire U.S. group.
Debt-strapped
In a research note on Friday ABN Amro said a merger might make strategic sense and would create an "undisputed world leader" in optical transmission and broadband switching. However, it noted buying Lucent would have a "significant negative financial impact".
"Alcatel Management (is) able to execute turnarounds: we believe Alcatel would be able to execute such a deal," ABN Amro said. "Alcatel's management team has been able to reposition a conglomerate into a broadband telecom infrastructures company. Back in 1995, Alcatel was loss making at the EBIT level and considered as a local phone equipment company."
But Credit Lyonnais' Anthony said that while it would make sense for Alcatel to acquire the debt-strapped Lucent's fibre optics division, trying to absorb the entire group did not.
She said the timing would be ill-chosen: buying Lucent would remove Alcatel's advantage of being more weighted to Europe than to the slowing U.S. economy.
"My suspicion is that Lucent is probably weighed down with the kind of bureaucratic, ex-monopoly culture that Alcatel itself has struggled with and finally overcome," Anthony also said.
More importantly, $40 billion would be a huge amount for Alcatel to raise, even in new shares, she said.
The New York Times said in its online edition that the nearly all-stock deal under discussion would offer a premium of about 20 percent over Lucent's current value of $33.5 billion.
Optics was just the start
Alcatel Chairman Serge Tchuruk said last month it had entered a bid for the American group's optics division, which debt-strapped Lucent wants to sell to raise cash. Analysts estimated such a deal in a $5-8 billion range. See story.
Analysts at Enskilda Securities also said Alcatel was particularly interested in Lucent's fibre optic operations.
"It is believed that (Alcatel) will bid for this business even if a formal bid for all of Lucent does not emerge," it said in a morning note to clients.
On Friday, the spokeswoman also declined to comment on the status of Alcatel's bid for Lucent's optics division.
Rising star
Lucent, which grew out of the telephone empire established by Alexander Graham Bell, has run into trouble in recent years, struggling with high inventories and falling sales.
While Lucent dived, Alcatel has thrived, staging a dramatic turnaround since Tchuruk took over in 1995. It is the only European company in the same league as equipment makers Nortel (NT: news, msgs, alerts) and Cisco (CSCO: news, msgs, alerts) .
But while many analysts praise it for its balanced regional and product mix, Alcatel is coming under increasing pressure from telecom industry turmoil, suffering several downgrades in the last month.
Its latest stockmarket setback came earlier this week when its Canadian customer 360networks (TSIX: news, msgs, alerts) said it was postponing an order worth $1.1 billion. See story.
The delay prompted credit rating service Standard & Poors on Friday to put Alcatel's single-A long-term rating on a credit watch with "negative implications".
An early June deal?
The New York Time's online edition said, citing executives close to the discussions, that Alcatel and Lucent had been talking for the past month.
A decision on whether to proceed is expected within the next week, it quoted sources as saying. If they move forward, a deal could be announced in early June, they were reported to have said.
The Wall Street Journal was the first newspaper to report an Alcatel was contemplating a bid for all of Lucent. See FTMarketWatch story.
See ABN Amro comment on the Lucent deal talk.
See ABN Amro research on Alcatel.
See CBSMarketWatch corporate profiles of Alcatel and Lucent.
Francesca Gee is a reporter for FTMarketWatch.com in Paris.
Peter Bale is managing editor of FTMarketWatch.com in London.
Allen Wan is a news editor for CBS.MarketWatch.com in New York.
Latest Industry News |
