Citing pride and financial stress for the collapse of the Lucent-Alcatel merger talks last week, analysts do not expect any suitors to walk up the aisle with the Murray Hill, N.J.-based manufacturer any time soon.
Lucent Technologies Inc. and Alcatel SA had revved up a great frenzy complete with newspaper headlines and a stock market roller-coaster ride until both companies shut the door on the talks.
While analysts think the sour economic times call for combinations, they consider Lucent’s insistence on a merger of equals will prevent the other main players like Cisco Systems Inc., Nortel Networks Corp., Nokia Corp., Motorola Inc. and L.M. Ericsson. from making any overtures for the company.
Jane Zweig, chief executive officer of The Shosteck Group, said Bell Labs underpinned Lucent’s pride, while Elliot Hamilton, vice president of Strategis Group, pointed to the personalities and egos of the companies’ managers.
“Their pride is at stakes,” remarked Zweig. “A few years ago, they were the rising stars of the industry.”
She also cited the cultural match-up of both companies and the unwillingness of Lucent to surrender its managerial style to Alcatel, which insisted on having more representatives on the board of directors of the proposed new company.
“Interest is one thing,” said Hamilton, “taking the whole of the company is quite another.”
Zweig said Nokia would not fish for Lucent because the Finnish company has an entrepreneurial outlook, while Lucent does not. She said Cisco, which is tackling its legacy switch environment, has nothing to gain from Lucent’s wireless offerings.
As for Motorola, Zweig said the U.S. vendor has problems of its own.
“The way Lucent has positioned itself has made other companies wary,” said Hamilton.
Industry sources said both companies misunderstood the terms of the talks prior to the deliberations and Alcatel anticipated an acquisition while Lucent wanted a merger of equals.
“No matter how large the deals are, it often comes down to personalities and egos,” said Hamilton, although he said Bell Labs played a little role in the collapse of the parley.
At the outset of the talks, Lucent was ready to give up the company for as much as $40 billion. Before it collapsed, it had plummeted to as low as $23 billion.
As the talks ended, Alcatel issued a profit warning and laid off 900 employees even as the company’s chief executive, Serge Tchuruk, said the French company was not shopping for acquisitions in the U.S. market.
Alcatel said it expected a net loss of $2.56 billion, blaming a tardy market and restructuring costs. It said it cut the 900 jobs to consolidate its plants in North America, which have been experiencing hard times.
“With business conditions in the U.S. remaining tough, the need to continue to cut our operating costs remains important,” said Mike Quigley, president of Alcatel Americas.
Hamilton said Alcatel wanted the tie-up with Lucent because it wanted to address its inadequacies, which included rising inventory and debt levels.
Both Zweig and Hamilton said both companies need each other. Zweig said Lucent may have racked up considerable CDMA contracts, but its GSM business is minimal.
The merger talks began with Lucent’s efforts to sell its fiber-optics unit. Alcatel was one of about six other companies interested in the unit.
Pirelli denied that it was making any bids for Lucent’s fiber-optics division.
“Concerning news agency reports, Pirelli denies that it has ever formalized, either on its own or jointly with others, any offers to buy the fiber-optics and cables divisions of Lucent Technologies,” said the company in a statement.
