Alcatel, Lucent in $34 bln merger talks. in talks with its smaller U.S. rival Lucent Technologies (LU.N: Quote, Profile, Research) to create a combine with sales of 21 billion euros ($25.33 billion), the companies said late on Thursday.
By Astrid Wendlandt and Lucas van Grinsven
PARIS/AMSTERDAM, March 24 (Reuters) - French telecoms equipment provider Alcatel (CGEP.PA: Quote, Profile, Research) (ALA.N: Quote, Profile, Research) is in talks with its smaller U.S. rival Lucent Technologies (LU.N: Quote, Profile, Research) to create a combine with sales of 21 billion euros ($25.33 billion), the companies said late on Thursday.
They broke off previous merger talks in 2001 after Lucent balked at the idea of an Alcatel takeover and they said on Thursday they were discussing a potential "merger of equals" that was intended to be priced at market, meaning with no premium on their stock prices.
Their merger would produce a company larger than Cisco Systems (CSCO.O: Quote, Profile, Research) and would mark the latest round of consolidation in the telecoms and media sector as companies respond to the rapid conversion of technologies and the growth of "triple play," the provision of TV, high-speed Internet and voice services over phone lines.
It would also give the two companies a combined market capitalisation of more than 28 billion euros ($33.78 billion).
"The customer suggests what the vendor should do. Purchasing power comes with being big. And secondly there are always synergies to be made by combining operations," Lucent Chief Operating Officer Frank d'Amelio told Reuters two weeks ago, when asked about mergers between equipment vendors.
The overnight news barely moved Alcatel shares at the opening of the Paris bourse but by 0824 GMT the stock was up by 4.75 percent at 13.45 euros.
The two companies said there could be no assurance that an agreement would be reached and no further comment would be provided until an agreement is reached or the discussions are terminated.
At the time of their last merger talks in 2001 Alcatel was interested in Lucent's fibre optic business. Lucent had initially agreed to hold a 42-percent ownership stake in the combined company, with Alcatel having majority control.
"It's never going to be a merger of equals. Alactel are even stronger than they were five years ago and they have much more momentum than Lucent," a financial adviser who knows both companies well and was familiar with earlier merger negotiations told Reuters on Friday.
A spokeswoman for Lucent on Thursday declined to comment on how long the latest negotiations had lasted or provide other details.
The merger, if it goes ahead, would raise questions about Alcatel's 9.5 percent holding in compatriot defence electronics group Thales (TCFP.PA: Quote, Profile, Research). The market has been rife with speculation Alcatel wanted to raise its holding in Thales.
Thales shares were up 3.89 percent at 37.42 euros by 0834 GMT.
"This move is necessary as we have seen such consolidation among operators so telecoms equipment providers cannot stay in the position they are in," said Remi Thomas, analyst at CA Chevreux in Paris said.
Thomas said such a merger would be better for Alcatel than a tie-up with Thales (TCFP.PA: Quote, Profile, Research).
However, other analysts disagreed.
"This is bad news for Alcatel because Lucent has so much baggage," Richard Windsor, analyst at Nomura in London said.
"I am far from convinced Alcatel needs Lucent to meet its long-term ambitions."
Lucent, based in Murray Hill, New Jersey, saw its first-quarter revenue fall 12 percent to $2.05 billion, with U.S. revenue down 7 percent and international revenue off 20 percent.
Alcatel's fortunes, by contrast, have been on the upswing. Last month it posted better than expected fourth-quarter profits and sales as telecom operators invested more in new video services.
(Additional reporting by Ransdell Pierson and Robert MacMillan in New York, Jessica Hall in Philadelphia)
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