vnunet.com analysis: Alcatel and Lucent to merge

Alcatel and Lucent Technologies have agreed to a merger that will form a single entity worth €21bn in sales.

The deal will create a company that combines wireless, wireline and related services, as well as a sizeable global research and development division.

"This new company - let's call it 'Lucatel' - will benefit from the financial capabilities to support the important R&D long-term bets that a network equipment provider has to undertake," said Jean-Charles Doineau, service infrastructure practice leader at analyst firm Ovum. 

The primary reason for the combination, according to a joint Alcatel/Lucent statement, is to tap the market opportunities for next-generation networks, services and applications.

However, the companies also plan to save £1bn over three years by merging similar operations. Doineau suggested that this would include a number of job cuts.

"'Lucatel' plans to achieve $1.7bn in operational synergies after three years, 30 per cent of this in the first year. One component of this programme will come from layoffs, which will reach approximately 10 per cent of the company workforce," he said.

The Alcatel/Lucent statement claims a combined staff of 88,000, leaving 8,800 out of work if Doineau's prediction is accurate. But the deal faces other problems, according to industry analyst Gartner. 

"The two companies face other potential obstacles including political, regulatory and shareholder approvals; possible cultural misunderstandings and disagreements on board and management positions; and differing strategies for research and technology," said a Gartner report. 

The analyst also predicted that this could be the start of a new period of mergers in the networking industry.

"Together, Alcatel and Lucent should have the scale to avoid being squeezed between low-cost Chinese producers and giants like Cisco," said the Gartner report.

"And with Lucent Worldwide Services, they have capabilities broader than those of more limited competitors. Expect more mergers among vendors."

The companies first admitted that they were in talks on 24 March, and the merger is being billed as a "partnership between equals". 

Alcatel chief executive Serge Tchuruk will become non-executive chairman of the new entity, while Lucent chairman and chief executive Patricia Russo will become chief executive. The two firms will get equal board representation.

"A combined Alcatel and Lucent will be global in scale, have clear leadership in the areas that will define next-generation networks, boast one of the largest research and development capabilities focused on communications, and employ the largest and most experienced global services team in the industry," said Tchuruk.