From the WSJ: One possible predator for Ericsson: Siemens, a major supplier of communications networks for voice and Internet transmissions, which has seen its share price remain strong, in part because the company continues to achieve profitability in divisions such as the turbine-making power-generation unit, or its medical unit.
Alcatel and Lucent Megamerger Is Seen
Unlikely to Spur Copycat Telecom Deals
By EDWARD HARRIS, ALFRED KUEPPERS and ALMAR LATOUR
Staff Reporters of THE WALL STREET JOURNAL
> Copycats of the merger between Alcatel </pj/q-quote.cgi?sym=ala&type=company> SA and Lucent Technologies </pj/q-quote.cgi?sym=lu&type=company> Inc. aren't likely to come forward anytime soon.
> Alcatel's expected $32 billion (37.25 billion euros) acquisition of Lucent of the U.S. -- driven by cost-savings, spiraling valuations and a hunger for a strong global presence -- seems to mark a fast end to at least Lucent's short-term headaches. Combined, the companies will cut an estimated $4 billion per year in costs and significantly push up their market share.
> But other industry players, both stronger ones and those plagued with sagging share prices and increased competition, seem to shrug their shoulders for now at the thought of a megamerger as a cure to the telecom hangover. In the fast-moving world of telecom technology there may not be time to put together a major alliance, their logic goes, and the benefits of partnership are uncertain at best because market demands and technologies are changing all the time.
> "We don't see large mergers as a way to grow for us," says Lauri Kivinen, spokesman for Nokia </pj/q-quote.cgi?sym=nok&type=company> Corp., which with a market capitalization of 170 billion euros is the telecom market's strongest player. "We've reached critical mass by organic growth."
> Other companies appear just as unlikely to make a move. Telefon AB L.M. Ericsson </pj/q-quote.cgi?sym=ericy&type=company> has been busy trying to turn around its shares through a restructuring -- and if anything it could become a target if it's situation worsens. British telecom-equipment maker Marconi </pj/q-quote.cgi?sym=moni&type=company> PLC says it doesn't need a merger partner to succeed. However, Siemens </pj/q-quote.cgi?sym=si&type=company> AG of Germany is seen as a possible predator in the field. Its shares have remained relatively strong compared to weaker rivals.
> "I see significant disadvantage in increasing research staff," said John Mayo, deputy chief executive of Marconi, at a conference last week commenting on industry consolidation. "From Marconi's perspective, we believe we easily have enough scale to manage" without merging.
> Ericsson, which has seen its fortunes decline drastically over the last year, appears to be fighting hard to continue flying solo when it comes to its muscular network-equipment arm. With the company's shares down nearly 66% from when they hovered around 225 kronor ($21.41 or 24.88 euros) last year, Ericsson this year embarked on a painful restructuring intended to turn itself around and make it a pure telecom equipment producer. So far the company has slashed about 20,000 jobs -- or nearly one-fifth of the company's employees -- since the beginning of the year, and the company shed its handset division to a joint venture with Sony </pj/q-quote.cgi?sym=sne&type=company> Corp. of Japan. "If we don't take drastic action, we will be a junk bond by the end of this year," says one company insider.
> Even if Ericsson will not succeed at turning around in the next few months, its unique share structure protects it from potential predators or corporate raiders. Two of Sweden's largest holding companies -- the Wallenberg family's holding vehicle Investor AB, and Handelsbanken AB's holding company Industrivarden AB -- collectively hold 80% of the Ericsson's voting rights, while only owning a mere 5.8% of the company's shares. Any meaningful takeover would have to be approved by both holding companies, which is unlikely at low share prices.
> One possible predator for Ericsson: Siemens, a major supplier of communications networks for voice and Internet transmissions, which has seen its share price remain strong, in part because the company continues to achieve profitabili> ty in divisions such as the turbine-making power-generation unit, or its medical unit.
> Siemens recently announced that it hoped to become a world leader in broadband technology, hopes that are dashed by the Lucent-Alcatel link-up. Lucent is the largest broadband provider, and Alcatel is currently No. 2, according to Siemens. Being No. 1 "was the goal when Lucent and Alcatel were separate companies," said Roland Pitz, a telecom analyst with Hypovereinsbank Research. "Now the situation is much different."
> Siemens could strengthen its weakened market position through acquisitions, particularly since its share price is off just 29% to 90.38 euros from its high reached last March. Siemens is "always looking for acquisitions, if they can find the right candidates," said Mr. Pitz. "But Siemens has strength right now in some of its high-tech industrial divisions. This reduces the pressure on the company overall."
> For its part, Nokia has not been interested in megamergers in the past decade and the company is unlikely to become a predator any time soon, company insiders say. With the exception of the acquisition of numerous small tech companies over the years, the Finnish telecom-equipment company has stayed clear of flirting with its peers, in part because it now has a firm grip on its own business. Nokia enjoys a market-leader position in handset production and has been steadily gaining on rival Ericsson in the landing new wireless-network construction deals in the past year. "But what's good for us, may not be good for others," says Nokia's Mr. Kivinen.
> -- Kevin J. Delaney in Paris contributed to this article.
> Write to Edward Harris at ed.harris@wsj.com <mailto:ed.harris@wsj.com>, Alfred Kueppers at alfred.kueppers@wsj.com <mailto:alfred.kueppers@wsj.com> and Almar Latour at almar.latour@wsj.com <mailto:almar.latour@wsj.com> |
