April 4, 2006

Lucent Technologies and Alcatel's merger is officially moving forward with Lucent’s chief executive, Pat Russo, set to lead the yet-to-be-named Paris-based telecom giant, the companies said.

Alcatel’s Mike Quigley, corporate operations officer, will be part of a multicultural management committee the companies plan to create to help balance the two organizations.

“Any transatlantic deal is challenging, but especially one that involves the merging of two very different corporate cultures,” wrote Bill Lesieur, director of Network Business Quarterly at Technology Business Research. “Resolving who will take the dominant role in a merger is a big issue.

Although financially structured as a merger of equals, Alcatel is taking over Lucent from an organizational standpoint. However, with Lucent CEO Pat Russo in charge of the combined companies, TBR believes the power struggle will be mitigated.

However, the soon-to-retire Alcatel CEO Serge Tchuruk needs to aggressively ensure that Russo is given full confidence and absolute power over the existing Alcatel organization, so that she is not set up for failure by the power base of executives at Alcatel.”

The companies said cost synergies will emerge within three years of the closing and will come from consolidating support functions, optimizing the supply chain and procurement structure, and leveraging research and development across a larger base.

The companies also announced they will reduce their combined worldwide workforce by approximately 10 percent. At the close of last year there were a total of approximately 88,000 employees working for Lucent and Alcatel.

“The strategic logic driving this transaction is compelling,” stated Russo.

“The communications industry is at the beginning of a significant transformation of network technologies, applications and services—one that it projected to enable converged services across service-provider networks, enterprise networks and an array of personal devices.”

The combined entity will have revenues of about $25 billion, divided almost evenly among North America, Europe and the rest of the world, said the companies.

“This combination is about a strategic fit between two experienced and well-respected global communications leaders who together will become the global leader in convergence,” said Serge Tchuruk, chairman and chief executive of Alcatel who will become non-executive chairman of the combined company.

“A combined Alcatel and Lucent will be global in scale, have clear leadership in the areas that will define next-generation networks, boast one of the largest research and development capabilities focused on communications, and employ the largest and most experienced global services team in the industry.

It will create enhanced value for shareholders of both companies who will benefit from owning the most dynamic, global player in the communications industry.”

Upon completion of the merger, expected to close by October, Alcatel shareholders will own around 60 percent of the combined company, while Lucent shareholders will own about 40 percent.

To deal with the sensitive research and development work that Lucent’s Bell Labs handles for the U.S. government, the company said it will create a separate subsidiary to manage the business.

The company said it will nominate William Perry, former Secretary of Defense; James Woolsey, former director of Central Intelligence; and Kenneth Minihan, former director of the National Security Agency, for board positions with the subsidiary.

Bell Labs President Jeong Kim, a former U.S. Navy nuclear submarine officer, will continue to lead Bell Labs, which will remain based in New Jersey, said Lucent.

Source: RCR