PARIS and MURRAY HILL NJ – Wireless and wireline equipment manufacturers Lucent and Alcatel announced today that the two companies are merging.
The combined company will have revenues of about US$25 billion based on 2005 results.
The combination will enable new growth opportunities and "identifies annual pre-tax cost synergies of approximately US$1.7 billion within three years," says the press release.
"This combination is about a strategic fit between two experienced and well-respected global communications leaders who together will become the global leader in convergence," said Serge Tchuruk, chairman and CEO of Paris-based Alcatel, who will become non-executive chairman of the combined company. "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.
"The communications industry is at the beginning of a significant transformation of network technologies, applications and services — one that is projected to enable converged services across service-provider networks, enterprise networks and an array of personal devices," added Patricia Russo, chairman and CEO of Lucent, who will become CEO of the combined company.
The combined company, which will be named at a later date(Lucatel? Alcacent?), will have an aggregate market capitalization of about US$36 billion), based upon the closing share prices on Friday. As of December 31, 2005, the combined companies had about 88,000 employees.
The cost synergies (i.e. layoffs due to the elimination of duplicate structures) are expected to be achieved within three years of closing "and will come from several areas, including consolidating support functions, optimizing the supply chain and procurement structure, leveraging R&D and services across a larger base, and reducing the combined worldwide workforce by approximately 10 percent," says the release.
Under the terms of the agreement, Lucent shareowners will receive 0.1952 of an ADS (American Depositary Share) representing ordinary shares of Alcatel (as the combined company) for every common share of Lucent that they currently hold. Upon completion of the merger, Alcatel shareholders will own approximately 60 percent of the combined company and Lucent shareholders will own approximately 40 percent of the combined company. The combined company’s ordinary shares will continue to be traded on the Euronext Paris and the ADSs representing ordinary shares will continue to be traded on the New York Stock Exchange.
"The combined company created by this merger of equals is incorporated in France, with executive offices located in Paris. The North American operations will be based in New Jersey, U.S.A., where global Bell Labs will remain headquartered. The board of directors of the combined company will be composed of 14 members and will have equal representation from each company, including Tchuruk and Russo, five of Alcatel’s current directors and five of Lucent’s current directors. The board will also include two new independent European directors to be mutually agreed upon," says the release.
The combined company will also form a separate, independent U.S. subsidiary holding certain contracts with U.S. government agencies. This subsidiary would be separately managed by a board, to be composed of three independent U.S. citizens acceptable to the U.S. government. This type of structure is routinely used to protect certain government programs in the course of mergers involving a non-U.S. party.
The combined company will remain the industrial partner of Thales and a key shareholder alongside the French state. Directors to the Thales board who are nominated by the combined company would be European Union citizens. Serge Tchuruk, or a French director or a French corporate executive of the combined company would be the principal liaison with Thales. Furthermore, the board of Alcatel has approved the continuation of negotiations with Thales with a view to reinforce the partnership through the contribution of certain assets and an increased shareholding position in Thales.
