Mergers and Acquisitions: Alcatel, Lucent, Whos Next?

By Rich Tehrani

President and Editor-in-Chief

 

According to CNBC, Nortel's CEO says they will drop out of any space where they don’t control at least 20 percent of the market; and this corresponds to 60 percent of their businesses. This is very big news and means they may be auctioning off a large portion of the company at once or perhaps in pieces.

 

The news is timely as I had a chance to discuss the telecom M&A market with a number of thought leaders at CTIA this week in Las Vegas.

 

Many think that more acquisitions will happen in the next few months. One rumor is that Cisco will purchase Ericsson. This makes sense as Cisco is missing much of the service provider spending surge. Ericsson (News - Alert) gets them more entrenched in this game quickly.

 

The flipside is that Ericsson is not an easy company to purchase as it needs to get by the Swedish regulatory authorities and there are family owned shares that may not be for sale.

 

If this acquisition doesn’t happen, Ericsson could pick up a company or two of its own. Many smaller players are for sale but many, like Tekelec, are working on first raising their valuation in this new M&A friendly environment.

 

I met with Tekelec's new President & CEO Frank Plastina, by the way, and I am pretty impressed with him so far. I’m interested to see what he does with the company.

 

But, the M&A market seems to expect a big deal. Some think Cisco will acquire someone big. But they aren’t huge fans of large acquisitions. Then again, the networking giant just picked up Scientific-Atlanta—so perhaps sizable deals are on the table.

 

Speaking of Atlanta, John Chambers prefers to acquire not only small companies but ones located near or in Silicon Valley. Scientific-Atlanta (News - Alert) is Georgia-based (as you may have guessed) and Cisco is obviously willing to be flexible in their spending.

 

The one thing worth noting is this large acquisition may actually act as a deterrent to another big deal in the near future.

 

Speaking of Georgia, I was there recently and I had a chance to visit Arris, a company that is very strong in the cable space. The company is very focused on R&D and is rapidly launching new products across the spectrum of the cable market. They too could be attractive for two reasons: 1) the cable market is hot, and 2), they are expanding into IPTV (News - Alert).

 

Getting back to Cisco, perhaps they will look closely at purchasing Nortel (News - Alert), a company with a huge portfolio of products (for now). Some think Nortel's financials, which are in the process of getting cleaned up, will dissuade anyone from purchasing them. But, there aren’t too many other options if you are looking to do a deal on the order of Alcatel's new purchase.

 

Then there is the Siemens’ telecom division which many think could be sold by the huge German-based conglomerate.

 

I am very impressed with Harald Braun, the head of Siemens’ Networks division. Harald is one of the most animated and passionate people I have met in this business and he may also be one of the greatest champions of IMS or IP Multimedia Subsystem (News - Alert) solutions.

 

Having recently launched IMS Magazine, I am obviously a huge proponent of the IMS space. For these reasons, among a number of others, I would be sad to see Siemens sell off this division.

 

In addition, spinning off the telecom division for Siemens would be tough as telecom is part of the Siemens One initiative which focuses on combining the synergies of the company’s myriad business units. Depending on the country, there are 13-16 of these units and Siemens One has brought an additional billion dollars in sales to the company by selling such things as airports and sports arenas.

 

So, it seems some of the most likely acquirers are Ericsson or Cisco; and Nortel has already volunteered the fact that they will be getting out of some businesses that could represent up to 60 percent of their current business lines.

 

If indeed the hunches of many people I spoke with are correct, we will see a big or series of smaller deals by September of this year. Until then, expect to see me glued to the financial channels waiting for more announcements from telecom CEOs.

 

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Rich Tehrani is President and Group Editor in Chief at TMC. In addition he is the Chairman of the world’s best attended VoIP event, Internet Telephony Conference & Expo.