Alcatel is rumored to be planning a takeover bid for its troubled rival Lucent.
The New York Times reported on Friday that French telecoms equipment firm Alcatel is in advanced talks to buy its US rival Lucent for $40 billion. The French firm has already bid for Lucent’s fiber optic division, worth around $5-8 billion; the NYT said that a decision on whether to bid for the whole company is expected within the next week with an official announcement in early June.
While a deal would certainly be good news for Lucent’s shareholders, safeguarding the cash-strapped firm’s future, it doesn’t look so sensible for Alcatel. The French firm has managed to escape from its bureaucratic traditions, selling off its engineering interests and emerging as a focused infrastructure firm. It is also in a strong market position, with major success in the still relatively strong areas of Europe, DSL and optical products.
Lucent, however, has failed to escape from its monopoly culture, as a former part of AT&T. It has developed impressive kit, with its Bell Labs research division one of the most innovative research departments in the world, but has failed to market it successfully. It’s also particularly badly placed for the economic slowdown, with a lot of its business in the extremely hard-hit US fixed-line telecoms sector.
There’s also a good chance a merger would face fierce opposition within the US. Bell Labs is heavily involved in government encryption work – and the US government has lately been vociferous in its opposition to foreign takeovers of such firms. It’s quite possible that the authorities would force Alcatel to sell Bell Labs, losing one of Lucent’s most attractive parts.
Lucent is superficially tempting. Alcatel would be picking up a potentially strong business at a relatively low price – and when the downturn ends, having a bigger US operation would be a bonus. But it just doesn’t look worth it. Especially if the Bell Labs prize isn’t even on offer, a digestible acquisition of Lucent’s optical business would be far more sensible than buying the whole company.
