Lucent, Alcatel Finalize Merger

The French group will control 60 percent of the shares in the combined operation, and after tough talks it was agreed a separate, independent entity would be established to oversee sensitive contracts with the U.S. government.

The companies revealed ten days ago they were in merger talks, and the biggest obstacle to the merger was believed to be how to address political and security concerns regarding the work done by Lucent’s Bell Labs subsidiary for the U.S government, particularly for the Pentagon.

The deal was also complicated by Alcatel’s plans to increase its 9.5 percent stake in French aerospace and defence group Thales. The announcement on Sunday (April 2) said the combined group would “remain the industrial partner of Thales and a key shareholder alongside the French state,” and that talks would continue over the possibility of Alcatel increasing its stake in Thales. The French government currently has a 30 percent stake in Thales.

With market capitalization of Euros 30 billion ($36 billion), second only to Cisco in the communications equipment business, Alcatel/Lucent would rank in one of the top two positions in almost all of its markets, with a global lead in the convergence of fixed and mobile technology.

It would also command the industry’s biggest research and development capacity, with an annual budget of Euros 2.4 billion ($2.9 billion).

Shares in the combined group will be traded on both the New York stock exchange and Euronext, and the company would be incorporated in France with the executive offices in Paris.

Pat Russo, Lucent’s chairman and CEO will be CEO of the combined operation while Serge Tchuruk, the head of Alcatel, will become non executive chairman. The French and U.S. companies will have equal representation on the 14-strong management board of the new concern.

Russo said: “The strategic logic driving this transaction is compelling.”

Tchuruk said the changing nature of the market, where big operators were merging to put greater pressure on suppliers, made “scope and scale” necessary.

The deal is expected to produce savings of Euros 1.4 billion ($1.7 billion) within three years, but is also likely to see the combined workforce reduced by about 9,000, or 10 percent of the current headcount.

The agreement also stipulates a $500 million break-up fee if either side pulls out.