Alcatel Agrees to Buy Lucent

Merger Subject to Antitrust, National Security Review

France's Alcatel yesterday said it agreed to acquire Lucent Technologies Inc. for about $13.4 billion in stock in a deal analysts said would create the largest equipment supplier to telephone and wireless carriers around the world.

The companies, which held abortive merger talks five years ago, said the combination would give them a stronger range of products, a greater ability to compete as their customers consolidate into fewer big players and a geographic reach almost evenly balanced among the Americas, Europe and the rest of the world.

Alcatel, which is based in Paris, and Lucent, whose headquarters is in Murray Hill, N.J., said they expect to reduce their combined workforce by about 10 percent, or 8,800 jobs, as a result of the merger. Lucent has about 400 employees in the Washington area and Alcatel about 100 workers in the region.

Telecommunications analysts praised the merger, saying Alcatel's strengths in building equipment for high-speed DSL lines and in developing technology to carry video over the Internet were a good complement to Lucent's expertise in wireless equipment.

"These two companies match up perfectly . . . wherever Alcatel is strong, Lucent is weak and wherever Lucent is strong, Alcatel is weak," said Paul Sagawa, an analyst with Sanford C. Bernstein & Co.

The companies said they would take steps to ensure that sensitive work carried out for the U.S. government by Lucent and its vaunted Bell Labs research arm would be overseen by an independent U.S. subsidiary with three U.S. citizens as its directors.

Former CIA director R. James Woolsey said he, former defense secretary William J. Perry and former National Security Agency director Kenneth A. Minihan had been approached to serve on the board but declined further comment. An assistant to Perry said he was traveling and could not immediately be reached for comment.

The merger must be cleared by European Union and American antitrust authorities, as well as the interagency Committee on Foreign Investments in the United States, which scrutinizes foreign purchases of U.S. companies to ensure they do not threaten national security.

Analysts said one area in which the companies might have difficulty would be in blending their cultures, although executives at both firms said they knew one another well, dating back to their 2001 merger talks. According to most accounts, those discussions fell apart over the issue of power-sharing.

"The fit between the people was perhaps not as good as one would have hoped," Alcatel chairman and chief executive Serge Tchuruk said yesterday, of the 2001 talks. "As we say in France . . . the mayonnaise did not hold," he added. "Now, things are very different."

The new company, which has yet to be named, will be based in Paris. Tchuruk will be its nonexecutive chairman while Lucent chairman and chief executive Patricia F. Russo will become its chief executive.

Under the deal, Lucent shareholders will receive 0.1952 of an American Depositary Receipt representing Alcatel ordinary shares. That amounts to about 4 cents below Lucent's close on Friday.

The companies described the transaction as a "merger of equals," but Alcatel shareholders will end up owning about 60 percent of the combined company and Lucent shareholders about 40 percent.

The companies expect to achieve annual pre-tax synergies of about $1.7 billion within three years. About half of the cost-cutting will come from reducing their workforce.

Alcatel and Lucent have both struggled over the past six years as the telecom and dot-com bubbles burst, forcing them to slash jobs. Lucent's workforce, which hit 157,000 in July 2000, had been slashed to 30,000 as of the end of last year. Alcatel went through a similar downsizing.

"It is not an accident that these companies started talking about five years ago, which was right after the boom exploded, we were in the valley and they were looking for ways to cut costs," said Blair Levin, an analyst with Stifel Nicolaus & Co. "It made some sense back then and, for the same reasons, people think it makes some sense now."