How to do it right:
Alcatel, Lucent Take Steps
To Woo CFIUS Support
By GREG HITT in Washington and SARA SILVER in New York
Staff Reporters of THE WALL STREET JOURNAL
April 4, 2006; Page A4
Alcatel SA and Lucent Technologies Inc. appear to be taking care to avoid a political backlash against their proposed merger given the heightened scrutiny of foreign investment in the U.S.
The combined companies plan to create an independent U.S.-based subsidiary to handle government research projects that are of "sensitive nature," the firms said. Under the arrangement, all classified projects done for the U.S. government will be pulled together into a subsidiary that will be part of Lucent's Bell Labs, the company's elite research institution.
The subsidiary will be overseen by a separate board made up of three U.S. citizens: former Defense Secretary William Perry; former Central Intelligence Agency Director James Woolsey; and Kenneth Minihan, past director of the National Security Agency, which is responsible for monitoring electronic communications for possible security threats.
The arrangement grew from informal consultations between the two firms and the Committee on Foreign Investment in the United States, or CFIUS, a panel made up of several federal agencies that reviews possible national-security implications of foreign investments. Those conversations began well before the merger was made public, as the two firms, which hail from opposite sides of the Atlantic, worked to anticipate potential concerns, government and business officials said.
The companies are expected to make a formal filing with CFIUS, which will then review the deal. Creating a special structure to handle classified work isn't unusual, especially for mergers involving government defense contractors. But the early move to embrace the structure, and public discussion of the commitment, reflects the uncertain climate for foreign investment. In the past 12 months, major fights have broken out on Capitol Hill over the purchase of U.S. port operations by a Dubai company and a Chinese company's attempt to take over a U.S. oil concern.
Scott Flicker, a Washington-based attorney at Paul, Hastings, Janofsky & Walker LLP who specializes in CFIUS deals, said the arrangement appears to recognize the current political environment. "The audience for this is members of Congress, and those on the Hill, who would otherwise have concerns about the transaction," Mr. Flicker said. Treasury Department spokesman Tony Fratto said the companies have been in communication with CFIUS. "We do expect them to file with the committee at the appropriate time," he said. The secretary of the Treasury heads the security-review panel.
The uproar over the Dubai and China deals dramatized U.S. public unease with the ever-tightening global economy, and the country's increasing dependence on cross-border flows of foreign capital. Those deals involved state-controlled companies, which raised special concerns on Capitol Hill. The proposed merger between Alcatel, of Paris, and Lucent, of Murray Hill, N.J., isn't weighed down by that particular issue. Alcatel was nationalized in the early 1980s, along with many other French companies. But by 1986, the firm had been privatized and later became a publicly traded company.
Bell Labs does contract research for several government organizations, including the Department of Homeland Security, the National Aeronautics and Space Administration, and the Defense Advanced Research Projects Agency, the Pentagon's advanced-research lab. But not all the work is classified. Among other things, the labs do fundamental research on new technologies, such as all-optical communications networks, which would no longer require data to be converted into electronic signals to be processed.
Patricia Russo, Lucent's chairman and chief executive, underscored the company's commitment to addressing security concerns, pledging to "implement the combination between Lucent and Alcatel with U.S. national interests as one of our critical priorities, so that we can continue to assure protection of our classified work for the U.S. government." Ms. Russo will serve as CEO of the combined company. |
