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To: Johnny Canuck who wrote (43227)	4/3/2006 12:18:15 PM
From: Johnny Canuck	Read Replies (1) \| Respond to of 69835

Merger puts heat on Nortel $13.4 B merger will create global telecom giant Other firms will be forced to seek partnerships, analyst says Apr. 3, 2006. 06:49 AM TYLER HAMILTON BUSINESS REPORTER Alcatel SA's proposed $13.4 billion (U.S.) merger with Lucent Technologies Inc. announced yesterday should put pressure on Nortel Networks Corp. and other global telecom players to explore merger opportunities. "This has got to make Nortel think really hard about whether they can make it on their own or not," said Jon Arnold, a telecom analyst with J Arnold & Associates in Toronto. "The financial markets may force them into making a move if the carrers start to dictate they're only going to work with vendors that have a certain broader product set." France's Alcatel, the world's biggest maker of broadband Internet equipment, said yesterday it agreed to buy the smaller U.S.-based Lucent in an effort to gain more market heft and broaden its product mix. Combined, the companies will have more power to negotiate prices with their telephone company customers, which have resumed a wave of mergers, and a broader research and development base. "As we looked at this there is no question this is an R&D issue. Competition is increasing and size and scale really matter," said Lucent's chief executive Patricia Russo, who will serve as CEO of the new company. The companies first discussed a merger five years ago, but those talks broke down in 2001 after Lucent balked at the idea of a takeover, rather than a so-called "merger of equals." If approved, Alcatel would own 60 per cent of the combined company, which will have total revenue of $25 billion. Company leaders said yesterday they plan to shed 10 per cent of the combined work force — about 8,800 jobs — after the deal closes. The cuts would be "fair and balanced" across geographic regions and business sectors, Lucent said. Toronto telecom analyst Arnold agreed the merger is the product of consolidation in the North American telecom carrier market, which has left fewer customers for other equipment providers. He said Brampton-based Nortel and others in the sector, facing intense competition and deteriorating margins, may be forced to join the trend — particularly if they start to panic. Nortel, still trying to shake the effects of past accounting missteps, is in many respects more vulnerable than its peers. Finland's Nokia and Siemens of Germany are among those that could take a run at Nortel, but Arnold said China's ZTE Corp. or Hauwei Technologies Co. Ltd., which entered into a joint-venture with Nortel in February, are both good merger candidates. "Both are really trying to crack the North American market, and partnering with a big domestic firm (like Nortel) would be the way to go," he said. Alcatel CEO Serge Tchuruk will become non-executive chairman of the new Alcatel-Lucent — whose new name is to be announced later. The 14-member board of directors will include Russo, Tchuruk, five current directors from each company and two new independent directors. FILES FROM STAR WIRES SERVICES Additional articles by Tyler Hamilton