Lucent Close to $2.75 billion Sale
By Dennis K. Berman and Nikhil Deogun
Staff Reporters of The Wall Street Journal
Lucent Technologies Inc., moving to raise cash and restructure its business, is nearing a sale of its fiber unit to
Japan's Furukawa Electric Co. and Corning Inc. of the U.S. for a total of $2.75 billion, people familiar with the matter
say.
Under terms of the deals being discussed, Lucent would sell the bulk of the business to Furukawa for $2.525 billion
and receive $225 million from Corning for Lucent's fiber business in China.
Should the transactions be finalized, it would end five months of highly scrutinized negotiations over the fate of the
business, Optical Fiber Solutions, whose sale is crucial to Lucent's broad restructuring plan led by Chief Executive
Henry Schacht. Lucent needs to close the sale by Sept. 30 to spin off the remaining portion of Agere Systems Inc.,
its microeletronics unit. Lucent is under the gun to raise $2 billion in nonoperating cash to complete the spinoff, as
required by banks that lined up $4 billion in credit for the company earlier this year.
The fiber sale is likely to be viewed favorably by credit agencies, which have grown concerned about Lucent's cash
flow and recently downgraded Lucent's debt rating to junk status. Exiting the capital-intensive fiber business, based
in Norcross, Ga., would cut about 6,000 employees from the company's rolls, another objective, as Lucent tries to
adjust to a shrinking market for telecommunications equipment.
"Negotiations to sell the business are moving apace," Lucent spokeswoman Kathleen Fitzgerald says. Furukawa
declined to comment.
To be sure, several deal issues need to be resolved, including intellectual-property and other contractual matters,
people familiar with the situation cautioned. So the discussions with Furukawa could fall apart, or one of the other
bidders -- Pirelli SpA or Alcatel SA -- could try to trump Furukawa's bid at the last minute. Lucent has had extensive
negotiations with a variety of bidders for the business and come close before. Furthermore, Lucent isn't a stranger
to calling off deals, pulling the plug at the 11th hour on a merger of equals with Alcatel.
At this stage, though, Furukawa is the clear front-runner. As part of the deal being discussed, Furukawa would buy
the business and then turn around and form two joint ventures with CommScope Inc., of Hickory, N.C., one for the
fiber-cable portion and one for the fiber portion. CommScope, the No. 1 maker of coaxial cable, would invest $600
million to $700 million in cash in the joint ventures in which it will have roughly equal ownership with Furukawa. A
CommScope official declined to comment.
This wouldn't be the first time Lucent and Furukawa have struck an agreement. The two already operate Fitel, a
U.S.-based joint venture that makes telecommunications cable.
A deal would, however, represent a major reshuffling among players in the global fiber-optic business. For years,
Corning and Lucent have been primary competitors in the $12 billion fiber-optic market. Compared with those two
market leaders, Furukawa and CommScope are relatively unknown players.
Furukawa, a 117-year-old industrial company with 8,300 employees, has had some success in North America,
having held sizable shares in interests that eventually became JDS Uniphase Corp. To date, however, it hasn't been
as large a fiber player as Lucent or Corning.
The CommScope investment and the Corning purchase are significant, for they reduce the amount of cash
Furukawa has to pay. CommScope has long had its eye on Lucent's fiber business and had considered bidding with
Corning's backing. CommScope has made its mark with so-called hybrid-fiber coaxial cable, used for
broadband-cable operations. CommScope is expected to finance the deal by issuing debt and equity.
Meanwhile, Corning is planning to buy Lucent's stakes in two joint ventures in China, according to people familiar
with the matter. A Corning spokesman declined to comment.
When the business was put up for sale in the spring, Lucent had hoped to fetch as much as $8 billion. Since then,
stocks of fiber-optic companies have plunged, dragging down the business's value. Indeed, Lucent would be doing
well to get $2.75 billion, as some Wall Street executives had suggested Lucent wouldn't get more than $2 billion or
$2.5 billion. Lucent was also considering scuttling the sale, had prices fallen too low, the people said.
Lucent has had a tough time cobbling together a deal, because of a host of antitrust and intellectual-property
issues, in addition to the swoon in the market for telecom equipment. Corning, for instance, would have been an
obvious buyer for the whole operation but was essentially precluded from a deal because such a combination most
likely would raise regulatory problems.
(END) DOW JONES NEWS 07-23-01
12:00 AM
(It does not sound like $225 million is such a bad deal for the China business. I would like to learn about the licensing revenue stream too). |
