Alcatel & Lucent agree to merge

Stuart Corner
Monday, 03 April 2006 04:11

IT Industry - Deals

Alcatel and Lucent Technologies have agreed to merge to create a company with annual revenues of around $US25 billion with the aim of exploiting the opportunities to provide carriers with next generation networks and applications.

Alcatel shareholders will own approximately 60 percent of the combined company which is being billed as "a merger of equals". It will be headed by Alcatel CEO, Patricia Russo with Alcatel's CEO in waiting, Australian Mike Quigley, as COO. Alcatel's current CEO, Serge Tchuruk, who as due to retire, will become non-executive chairman. A name for the merged entity has not been announced.

The two companies claim the agreement will create "the first truly global communications solutions provider with the broadest wireless, wireline and services portfolio in the industry".

Tchuruk, said: "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...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."

The two companies expect to realise annual pre-tax cost synergies of about $US1.7 billion within three years, a substantial majority of which is expected to be achieved in the first two years. The merger also will result in approximately $US1.7 billion in new cash restructuring charges, with the charges to be recorded primarily in the first year. A substantial majority of the restructuring is expected to be completed within 24 months after closing. T

The combined company will be managed by a team that "reflects a balance between the two organisations, taking into account the best talents of each company and the multicultural nature of its workforce."

Immediately after the deal closes, a management committee will be set up headed by Patricia Russo, CEO, with Mike Quigley, COO; Frank D'Amelio, Senior EVP, who will oversee the integration and the operations ; Jean-Pascal Beaufret, CFO; Etienne Fouques, EVP, who will supervise the emerging countries strategy; and Claire Pedini, Senior VP, Human Resources.

Between signing and closing, Tchuruk and  Russo will supervise an integration team to be nominated shortly, which will seek to ensure that synergies will start to be realised as soon as closing takes place.

The combined company will be incorporated in France, with executive offices located in Paris. The North American operations will be based in New Jersey, where global Bell Labs will remain headquartered.

The board of directors of the combined company will be composed of 14 members and will have equal representation from each company, including Tchuruk and Russo, five of Alcatel's current directors and five of Lucent's current directors. The board will also include two new independent European directors to be mutually agreed upon.

The combined company intends to form a separate, independent US subsidiary holding certain contracts with US government agencies. This subsidiary would be separately managed by a board, to be composed of three independent US citizens acceptable to the US government. The companies claim that this type of structure is routinely used to protect certain government programs in the course of mergers involving a non-US party.

The transaction is expected to be completed in six to twelve months.