Lucent shares rise on word of merger talks with France's Alcatel

Friday, March 24th 2006, 10:17 am

By: News On 6

PARIS (AP) _ Shares of Lucent Technologies Inc. climbed nearly 10 percent Friday after the telecommunications equipment maker confirmed it was in merger talks with French rival Alcatel SA. The talks may stand a better chance of success than their failed attempt to join forces five years ago, analysts said.

The discussions nevertheless appear to be far from a conclusion and could yet run into political obstacles at a time of heightened protectionism, some observers cautioned.

Responding to reports in The New York Times and The Wall Street Journal, Alcatel and Lucent, based in Murray Hill, N.J., confirmed late Thursday that they were ``engaged in discussions about a potential merger of equals.''

Their joint statement added: ``There can be no assurances that any agreement will be reached or that a transaction will be consummated.''

Lucent shares rose 28 cents, or 9.9 percent, to $3.10 in morning trading on the New York Stock Exchange. Alcatel shares rose 3.9 percent to 13.35 euros ($15.98) in Paris.

A combination with Lucent would allow Alcatel to expand its presence in the U.S. market and could kick-start wider consolidation among companies that make the hardware behind mobile phone networks and high-speed Internet services.

Lucent's leadership in wireless technology, used by such major carriers as Sprint Nextel Corp. and Verizon Wireless, could offer a strong complement to Alcatel's leadership in DSL equipment _ used by phone companies that are growing their broadband business.

Newly consolidated U.S. players are likely to increase demands for economies of scale on equipment, Kepler Equities analyst Edmund Shing said, ``so even broadband-related volume growth will continue to be partly eaten away by price deflation.''

An Alcatel-Lucent deal would be ``a logical response for both companies,'' Shing said.

Alcatel and Lucent were on the verge of a deal in the spring of 2001, but the talks fell apart in a disagreement over how much control the French partner would have.

Since then, however, Alcatel has grown faster than Lucent, giving it a clear upper hand in merger talks, analysts said.

At Thursday's closing prices, Lucent had a market capitalization of $12.6 billion to Alcatel's $22 billion.

Lucent offers some key assets including its CDMA wireless infrastructure business and services, said Nomura analyst Richard Windsor, but it also comes with some heavy ``baggage'' including healthcare liabilities and its Bell research laboratories.

Lucent's ownership of Bell Labs, a significant player in U.S. telecommunications research, could also provoke political resistance to a deal with Paris-based Alcatel, some observers said.

Alcatel and Lucent said any transaction would be ``priced at market'' _ offering no premium for shareholders in either company _ but declined to comment further. The New York Times had reported that Alcatel was negotiating to acquire Lucent at its current market value.

The Journal reported Friday that Lucent Chairman and CEO Patricia Russo was set to head the new combined company, citing people familiar the talks.

But Exane BNP Paribas analyst Alexandre Peterc said he believed Russo was less likely to be accepted as the new boss than Mike Quigley, Alcatel's chief operating officer.

A combination with Alcatel could represent a fresh start for Lucent, which has gone through a remarkable boom-and-bust cycle in its 10-year history.

Its stock peaked in December 1999, and the company began missing earnings targets the following year. It was forced to restate previously released earnings amid the dot-com collapse.

Russo engineered a turnaround plan that has slowly improved the company's performance since 2002.

Alcatel, the world's largest provider of broadband Internet equipment, also has been gradually recovering from the telecom downturn by shedding jobs and streamlining operations.