Alcatel, Lucent Formalize Merger Plans

Alcatel (News - Alert) and Lucent Technologies (News - Alert) on Sunday reached a definitive agreement to merge the two companies in a $13 billion deal that creates one of the world’s largest telecom equipment vendors but also has significant international implications.

The combined company, which will be named at a later date, will have an aggregate market capitalization of approximately Euro 30 billion ($36 billion), based upon Friday’s closing stock prices. Based on calendar 2005 sales, the combined company will have revenues of approximately Euro 21 billion ($25 billion), divided almost evenly among North America, Europe and the rest of the world. As of December 31, 2005, the combined companies had about 88,000 employees.

Under the terms of the agreement, Lucent shareowners will receive 0.1952 of an ADS (American Depositary Share) representing ordinary shares of Alcatel (as the combined company) for every common share of Lucent that they currently hold. Upon completion of the merger, Alcatel shareholders will own approximately 60 percent of the combined company and Lucent shareholders will own approximately 40 percent of the combined company.

But the deal also has international implications. The combined company created by this merger of equals is incorporated in France, with executive offices located in Paris. The North American operations will be based in New Jersey, U.S.A., 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 Serge Tchuruk, chairman and CEO of Alcatel who will become non-executive chairman of the combined company, and Patricia Russo, chairman and CEO of Lucent who will become CEO of the combined company, 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.

To ease some concerns about foreign ownership of key U.S. intellectual property, the combined company intends to form a separate, independent U.S. subsidiary holding certain contracts with U.S. government agencies. This subsidiary would be separately managed by a board, to be composed of three independent U.S. citizens acceptable to the U.S. government.

The merger is subject to customary regulatory and governmental reviews in the United States, Europe and elsewhere, as well as the approval by shareholders of both companies and other customary conditions. The transaction is expected to be completed in six to twelve months. Until the merger is completed, both companies will continue to operate their businesses independently.

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Robert Liu is Executive Editor at TMCnet. Previously, he was Executive Editor at Jupitermedia and has also written for CNN, A&E, Dow Jones and Bloomberg. For more articles, please visit Robert Liu's columnist page.

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