ALCATEL WRITING OFF TSIX CONVERTIBLES:
<<<Alcatel Is Better Off Without Lucent, Investors Say (Update1)
By Jad Mouawad
Paris, May 30 (Bloomberg) -- The failure of Alcatel SA's attempt to buy Lucent Technologies Inc., an unprofitable U.S. rival, was probably the best outcome for the French company given that its own sales are sputtering, investors said.
Buying Lucent would have made Alcatel the No. 1 supplier of phone equipment, while also almost doubling its debt. Alcatel said late yesterday it may lose 3 billion euros ($2.6 billion) this quarter because of canceled contracts, the cost of moving production and a losing investment in one of its customers.
Given Alcatel's own situation, buying Lucent, No. 1 U.S. phone-equipment maker, ``would have been a huge mouthful to digest,'' said Robert Sellar, who helps manage 1.5 billion pounds ($2.13 billion) in global stocks at Aberdeen Asset Management.
For Lucent a partnership with Alcatel would have helped narrow losses and reduce its dependence on U.S. phone companies that have been spending less. The talks fell apart when Alcatel Chief Executive Serge Tchuruk and Lucent CEO Henry Schacht were unable to agree on management of the combined company, a person familiar with the talks said.
Alcatel's shares fell as much as 5.7 percent to 29.1 euros on concern about the company's loss. Lucent shares rose as much as 25 cents, or 2.5 percent, to 10.10 euros in Germany.
The Murray Hill, New Jersey-based Lucent lost more than $4 billion in the first half of its fiscal year, is shedding 16,000 jobs, and selling factories and businesses.
`No Rush'
In a two-paragraph statement issued after the close of U.S. trading yesterday, the companies said talks ``have been terminated.'' Lucent spokeswoman Mary Lou Ambrus and Alcatel spokesman Klaus Wustrack declined further comment.
``There's no rush for Alcatel to grow that quickly,'' said Philippe Lecoq, who helps manage about 1.4 billion euros at Ofivalmo Gestion in Paris, including Alcatel shares. ``They tried, they failed -- the surprise is the charge.''
Alcatel said it was taking a 3 billion euro charge to write off the value of a $700 million investment it made in 360networks Inc. convertible bonds. Earlier this month, Vancouver-based 360networks canceled a $1.1 billion order for Alcatel.
Faced with ``the continuing slowdown in the U.S. and in some parts of Europe,'' Alcatel said it was narrowing its business to three areas -- optics, phone networks and space technology. It has already begun selling its cable unit Nexans SA in an initial public offering, and is farming out mobile phone production to Flextronics International Ltd.
``Up till now, Alcatel seemed to be doing better than their rivals, but that's clearly not the case anymore,'' said Manuel Lachaux, an analyst at ETC in Paris who cut his rating on Alcatel shares to ``reduce'' from ``hold.''
Alcatel said it will be holding a conference call at 1 p.m. Paris time. The company is scheduled to report second-quarter earnings on July 27.
Until yesterday afternoon, talks were still underway. The Wall Street Journal and New York Times said the companies were near agreement for Alcatel to acquire Lucent for about $23.5 billion in stock.
Shares of Lucent fell 11 percent before the announcement yesterday on investor concern that the proposed transaction offered no premium. Newspapers last week said Alcatel would offer to buy Alcatel for about $32 billion, it market value at the time, in what was then branded a ``merger of equals.''
``The merger would have been good for Lucent and bad for Alcatel,'' said Michael Cohen, who manages the Alpha Analytics Digital Future Fund and sold his stake in Lucent earlier this year. ``It's hard for Lucent to right its ship alone. Merging with a continuing leader like Alcatel would've helped put the valuable parts within Lucent back in the game.'' >>>
Namaste!
Jim |
