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Technology Stocks : Alcatel (ALA) and France -- Ignore unavailable to you. Want to Upgrade?

To: Steve Fancy who wrote (3290)	5/20/2001 7:49:35 PM
From: zbyslaw owczarczyk	Read Replies (1) \| Respond to of 3891

"Don't Bet on an Alcatel-Lucent Deal"--The Standard, 5/18/01... Hope you find the below helpful. Good luck everyone :). Di ======================================================================= "Don't Bet on an Alcatel-Lucent Deal" thestandard.com "French Firm And Lucent Discussing Merger" washingtonpost.com ========================================================================= >>> Don't Bet on an Alcatel-Lucent Deal By Jason Krause May 18 2001 03:33 PM PDT The French telecom equipment maker is rumored to be in talks to buy the U.S. titan, but several factors conspire against such an alliance. It's the new rumor du jour: Alcatel, France's telecommunications giant, is in talks to buy Lucent. Here's why the deal won't happen. Lucent is one of the few indisputable titans of American business. It traces its lineage all the way back to Alexander Graham Bell. As part of the Bell system, Lucent was the heart of the U.S. telecommunications industry for more than a century. It's the company that invented everything from the telecommunications satellite to the laser and the transistor, and it has been the most widely held stock in America, the heart of almost every investor's portfolio. Now Alcatel, a French telecom equipment maker, is said to be in talks to buy the company for a mere $40 billion – a 20 percent premium over Lucent's already debased valuation. While this surely would be an embarrassment for American business, the upshot of this story for the U.S. is that the deal almost certainly will not happen. That's not just because Alcatel, with a market capitalization of $36 billion, is only slightly bigger than Lucent, with its market cap of $33 billion. Nor is it because Alcatel has about $3 billion in cash and cash equivalents on hand, while Lucent is strapped with many billions in debt. And it's not because regulators wouldn't approve such a deal. None of these factors, in and of themselves, scotches the deal. Put them all together, though, and they make the deal a near impossibility. Already, investors have spoken, sending Alcatel down more than $2 per share in heavy trading. And if the deal actually happened, investors certainly would cause even more problems. A great deal of Lucent stock is still heavily concentrated in a number of huge investment funds, many of which do not hold shares in foreign companies. Such funds would surely dump the stock, quickly devaluing it. "It's just tough to believe this deal would ever happen," said John Gonsalves, a VP at Adventis, a consulting group that has worked with Lucent. "It might make sense for Alcatel to buy pieces of Lucent, but regulators and shareholders would never approve the whole thing." The rumored deal is supposedly an outgrowth of talks that Alcatel and Lucent were conducting regarding the sale of Lucent's optical fiber business, a potential $5 billion deal that Lucent had announced it was pursuing months ago. But a sale of all of Lucent seems far-fetched. "Alcatel doesn't have the cash right now, and its stock is not that valuable at the moment, so why would they buy a company that is having a tough time making its payments?" Gonsalves ponders. Moreover, U.S. regulators are highly unlikely to approve a deal that would allow foreign ownership of a company as large as Lucent. Germany's Deutsche Telekom has run into regulatory trouble while trying to buy some relatively small cellular companies. One aspect of the deal that makes sense is that although Lucent is a power in the U.S., it has had relatively little success overseas, especially in Europe. Alcatel, on the other hand, is a power in Europe but has broken into only a few U.S. markets, most notably in the sale of DSL equipment. A combination of the two would create a globe-spanning equipment maker. Alcatel could gain a lot from such a deal. Lucent has strengths in wireless and optical-networking equipment that Alcatel certainly covets, and Lucent's Bell Labs is the most famous research and development house in the world. But these facts only beg the question: Why would Lucent sell out these world-class assets? Alcatel and Lucent will have significant product overlap, meaning there will be lots of growing pains if they team up. And Lucent already has a bad track record when it comes to big mergers, as seen after its acquisition of Ascend in 1999. That $20 billion purchase might have been doomed from the start, when all of Ascend's top management bolted soon after the merger. In the wake of that brain drain, Lucent has failed to make any inroads against Cisco, the company with which Ascend's products compete most directly. "I was with Ascend when we were acquired by Lucent," said Chris Ford, a senior product manager with Equipe, a startup that competes with both Lucent and Alcatel. "The merger created endless difficulties because Lucent had many sales groups trying to sell to the same customers, which just confused the customers and messed everything up." <<<