Alcatel warnings temper Lucent relief
By Dominique Vidalon
PARIS, May 30 (Reuters) - Investor relief that Alcatel's <CGEP.PA> $23 billion merger with U.S. rival Lucent Technologies <LU.N> collapsed was overshadowed on Wednesday by a shock double profit warning from the French telecoms equipment firm.
Soon after news the talks had failed filtered out late on Tuesday, Alcatel said operating profit at its telecoms business would slip this year and restructuring charges and writedowns would lead to a second-quarter net loss of about three billion euros ($2.57 billion) at the division.
"The numbers are just scary. The size of the restructuring charges is huge. I am clearly disappointed," said ETC analyst Manuel Lachaux, who cut his rating on Alcatel to "reduce" from "hold" and Alcatel Optronics to "reduce" from "buy."
The profit warning drove Alcatel shares lower. The stock lost early gains to trade 0.3 percent lower at 30.75 euros by 0940 GMT, while tracking shares in its optical components unit Alcatel Optronics <CGO.PA> slumped 3.8 percent to 24.04 euros.
Alcatel shares have fallen more than 14 percent since merger talks to create what would have been the world's top telecoms equipment group began almost two weeks ago, as investors fretted over the longer-term risks of a deal with debt-laden Lucent.
Lucent, which has seen its market value plunge to $23 billion from more than $275 billion in December 1999 -- excluding its stake in optical components group Agere Systems Inc. <AGRa.N>, ended 11.5 percent lower at $8.32. But it rose in after-hours trade amid relief a no-premium deal had failed.
WHITHER LUCENT, ALCATEL?
Industry sources say talks came to an abrupt halt after Lucent walked out when it became clear Alcatel viewed the deal as a takeover of its U.S. rival, rather than "merger of equals," and because of disagreements over the structure of the combined company's board and management control.
But the fact that Lucent's Chairman Henry Schacht had been prepared to talk about a merger casts doubt on whether he has confidence in the loss-making group's turnaround.
Questions also surround Alcatel's strategy, which had been hoping to boost exposure to the U.S., the world's biggest telecoms market.
"We are seeing some short covering on Alcatel amid relief the merger with Lucent did not go through. But we got two profit warnings and these are not minor warnings," said one trader.
Analysts said they feared a flurry of downgrades later on Wednesday after a company conference call at 1100 GMT.
ALCATEL OPTICS OUTLOOK DARKENS
Alcatel said it was booking a three billion euro charge in the second quarter to cover restructuring and writedowns, notably of inventories and 360networks <TSX.TO> convertible bonds it owns.
"The only two pieces of good news from Alcatel are the end of the talks with Lucent and the refocusing on the networking, optics business," Lachaux said.
Alcatel said it planned to stop manufacturing mobile phone handsets and and would sell its enterprise business units to focus on its networking, optics and space activities. It has already launched the sale of its Nexans <NEXS.PA> cable unit.
"We are expecting massive downgrades over the next three to four months from the Alcatel figures," said one Paris trader. "For us the telecoms side is worse than expected and as was the outlook for the marine division."
The double profit warning sent shockwaves through the tech sector, shaving over five percent from British peer Marconi Plc <MONI.L> while the DJ Stoxx technology index <.SX8P> dropped 2.49 percent.
Alcatel Optronics <ALAO.O> cut its forecasts for 2001 because of the U.S. economic slowdown and a worsening short- to medium-term outlook for underwater communications equipment.
The division now sees a 20 percent to 25 percent top line growth for the full year 2001 with the operating margin coming in at 15 percent, down from April forecasts of 50 percent and 20 percent respectively.
Alcatel's bonds tightened around 30 basis points against benchmark swaps on Wednesday as markets welcomed the collapse of the Lucent talks. Investors were concerned the low credit rating of Lucent's bonds would have had a dilutive effect on Alcatel's higher ratings.
06:29 05-30-01 |
