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Lucent-Alcatel merger off
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May 29, 2001: 5:23 p.m. ET
Firms call off $23.5B deal, issues of control scuttle mega-merger
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NEW YORK (CNNfn) - Lucent Technologies and French networking firm Alcatel SA called off their $23.5 billion merger Tuesday, ending weeks of speculation.
Discussions between the two telecom equipment makers have not resulted in any agreement and talks have been terminated, the companies said in joint a statement. The firms did not cite any particular reason for the breakup in negotiations.
Lucent declined to comment further. "The statement speaks for itself," said company spokesman Bill Price.
Issues of control effectively scuttled the proposed transaction, which would have created a global giant in the telecommunications industry, a source familiar with the situation told CNNfn.com. Alcatel did not want to give Lucent equal weight in the merger, the source said.
"Lucent was negotiating a merger, not an acquisition," the source said. "When it became clear that it was not going to be constructed as a real merger of equals, Lucent decided to pursue its own path."
Alcatel was also pursuing a no-premium, all share takeover of Murray Hill, N.J.-based Lucent.
"They were not on the same page in terms of merger discussions," the source said.
Alcatel declined to comment.
The $23.5 billion transaction, first leaked on May 18, was expected to be announced Wednesday.
The Wall Street Journal reported Tuesday that the planned deal would have excluded Lucent's (LU: down $1.08 to $8.32, Research, Estimates) 58 percent stake in Agere Systems, the company's microelectronics unit.
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 CNNfn's Sonia Sequeira takes a peek at what had been a widely expected deal between Alcatel and Lucent Technologies. |
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Alcatel, Europe's fourth-largest telecom equipment maker, wanted to buy Lucent to break into the lucrative U.S. market, the world's biggest for telephone switches, fiber-optics and Internet routers.
Though the acquisition would have represented one of the largest ever in the technology sector, analysts questioned Alcatel's wisdom in picking up troubled Lucent, which is in the midst of a massive restructuring, particularly during an industry slump.
"I'm surprised by the speed at which it seems to be happening. I continue to be surprised that there aren't more Alcatel shareholders, especially institutional shareholders, protesting this," David Heger, an analyst with A.G. Edwards & Sons Inc., said. "I think it's a lot for Alcatel to take on."
"I'm surprised that Alcatel would want to take that on in a difficult environment for telecommunications equipment," Heger said. "It seems to me they would want to focus on their own profitability instead of taking on Lucent."
The transaction would have significantly boosted Alcatel's heft in the United States and could force other companies to merge to cut costs and cope with declining demand for telecommunications equipment.
Terms called for Alcatel (PCGE) shareholders to own about 58 percent of the combined entity, with Lucent shareholders owning the rest, the WSJ said.
What shareholders would receive
Under the deal, Lucent shareholders would have received a fixed exchange ratio of 0.2435 of an Alcatel share for each Lucent share, according to the WSJ, citing people familiar with the matter.
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Lucent has fallen on hard times lately, with its market value plunging to about $32 billion, including its Agere stake, from its peak of $285 billion in December 1999.
A combined Alcatel and Lucent merger could have extracted $4 billion in annual cost savings and would have offered a full array of products for large customers, according to the WSJ.
Based on the exchange ratio and Friday's stock price, Alcatel valued Lucent, without Agere, at $6.84 a share, and the entire company at about $9.09 a share.
That is slightly below the latest stock price because the ratio is based on Lucent's stock over the past 30 days and the shares have risen in the past few weeks in anticipation of a deal, the WSJ said.
Fiber-optics business
It was unclear Tuesday whether Alcatel would still acquire Lucent's fiber-optics cable business, which is being auctioned off and is expected to fetch $5 billion.
Alcatel and Italy's Pirelli are rival bidders for the fiber business, and Lucent needs cash to pay off some debt. 
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