News of the proposed $13.4 billion merger with Alcatel sent some at
the U.S.-based Lucent Technologies polishing up their French while
others updated resumes.
The new joint company worth $25 billion plans a
European headquarters and an 8,000-person job cut.
While CEOs of the two companies focused
on the synergistic benefits of a "merger of equals" between wire-line
Alcatel and wireless Lucent, analysts and others point out this new
marriage could have a rocky start.
Although the agreement could spur competitors Nortel or Ericsson to
merge or force networking giant Cisco to seek out smaller
vendors to plug any gaps, challenges remain, according to Brian Partridge, a Yankee Group senior analyst.
Whereas Jeff Heynen, an analyst with Infonetics said this is a match made in heaven due to Alcatel's market-leading wireline broadband access deployment and Lucent's CDMA strength.
However, "if Alcatel thinks they will change the leadership of the
next-gen voice landscape by merging with Lucent, they are misguided,"
said Stéphane Téral, another Infonetics analyst. The combined
Alcatel-Lucent company will be in sixth place behind market leader
Nortel and Siemens.
Partridge sees Nortel as likely the next merger. Nortel faces the
same challenges as Lucent.
"As observers, it would be foolish not to see challenges," Partridge
told internetnews.com. Among the potential stumbling blocks: the
Franco-American culture shock, job cuts and a climate against foreign
investment in the U.S.
Partridge said Lucent enhanced its attractiveness as a merger
candidate by bringing in new management and investing in VoIP, 3G and
broadband. "They got their business in order and made some good bets in
technologies," said Partridge.
The merger would make the new company the "dominant wireline
equipment supplier in both North America and Europe," according to
Partridge. Still, the union would produce only a medium-sized telecom
player above Ericsson but below Cisco.
Only after
several years spent combining and integrating the two companies will the
consolidated giant be felt in the industry, said Partridge.
Still, there will be some growing pains. "This is like moving two
elephants," said Juan Fernandez, a Gartner analyst. "No matter how well
you move it, there's still tons of weight."
Possibly the trickiest footwork involves the French composition of
the new company. Although the business will have a North American
office, the telecom giant will be based in France.
While Lucent CEO
Patricia Russo will be CEO of the merged organization, Alcatel CEO Serge
Tchuruk will be a chairman. Additionally, the arrangement requires
two other directors to be European nationals. The company stock will be
listed in France, as well. Naming an American as the CEO may be just
symbolic, said Partridge.
Countering any image of a European and American culture clash, the
two companies view themselves as international, according to Lucent
spokesperson Joan Campion.
Labor will be another potential for problems.
About 10 percent, or
8,800 employees, will be laid-off. Lucent could not answer which
percentage of the job losses will be borne by the U.S. company, but
French laws tightly control when employers can fire workers.
With 235,000 Lucent retired workers and a $35 billion pension fund,
the Lucent Retirees Organization last week voiced concern a merger could
jeopardize health care benefits.
Lucent will live up to its legal
requirements to retirees, according to Campion. The retiree group said
it would ask Congress for legislation to protect the benefits if Lucent
doesn't uphold the pension. The Communications Workers of America said
it would hold off supporting the deal until it meets with Lucent
executives. Campion refused to comment whether a meeting is planned.
Although France is not an Arab state, politicians could see the deal
as another Dubai ports affair, according to Fernandez.
"Lucent might be
painted a national icon," Fernandez said.
Lucent spun-off from Bell Labs
in 1996. Anticipating a possible government uproar, Lucent created a subsidiary
to conduct contracts deemed of a "sensitive nature."
This merger will not go smoothly, predicts Fernandez. "It would be a
miracle if it did."
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