Lucent, Alcatel In Merger Talks, Sources Say

Telecom equipment majors Lucent and Alcatel could agree on a merger as early as Tuesday, providing talks progress over the weekend, sources on both sides of the Atlantic said on Friday.

Both companies are understood to be keeping boards meeting over the extended holiday weekend, a number of sources in Europe and the United States told Reuters.

"If the talks succeed, and it's a big 'if', it could be announced on Tuesday," one industry source told Reuters.

Earlier on Friday, another source said negotiations would push on through the holiday weekend and no announcements should be expected during the weekend.

Alcatel shares closed 6.9 percent lower at 31.95 euros following the news that talks had become very serious, while Lucent shares were down 3.3 percent at $9.22 at 1745 GMT.

France's Alcatel is considering merging with U.S.-based Lucent, which has reported a combined $4.7 billion in losses in the first half of its current fiscal year, for little or no premium for Lucent shareholders, sources close to situation said on Wednesday.

Alcatel shares shed 11 percent since talks emerged last week, knocking some four billion euros off its market capitalisation, while Lucent has been stable.

Lucent is currently valued at around $33 billion, while Alcatel's market capitalisation on Friday was 41.5 billion euros.

Both companies have declined comment on what they describe as "rumours."

As talks are progressing, the management of the two companies are understood to be addressing awkward issues such as management configuration and fiscal and legal obstacles.

Sources close to both companies have painted the prospective deal as a "merger between equals," but it is more likely Alcatel would emerge as the dominant partner in any pairing, analysts and portfolio managers said. They said Alcatel Chief Executive Serge Tchuruk would need to tread carefully or risk chasing off some of Lucent's top executives.

Tchuruk and his top executives would have to walk a fine line between making the hard choices to revive Lucent, which many analysts believe includes cutting products and as many as 20,000 jobs, and assuaging fear among U.S. workers they will be trampled as Alcatel calls the shots.

Alcatel also would have to see the talks through Washington regulators, who would scrutinise any deal for anti-trust issues and for research being carried out in Lucent's Bell Labs, which could be vital to U.S. national security.

The deal would create a telecom equipment giant with a strong presence in both North America and Europe, and could set off similar mergers elsewhere in the telecom equipment industry.

The talks are inspired by the aim to pool customers in different regions of the world, offering products and services through a shared global network. Currently, Alcatel has only a small presence in North America where it wants to expand.

A Lucent acquisition would raise Alcatel's North American profile, which is somewhat low despite its purchases of Canadian telecom equipment firm Newbridge Networks last year and optical equipment firm DSC Communications in 1998.

In terms of technology, the two companies have very little to offer to each other as they mostly sell identical products which direct telecommunications traffic.

If the talks fail, rival telecom equipment companies have already expressed interest in Lucent's business units. Italy's Pirelli said earlier this month that it was interested in the fibre optic cable unit.

(Additional reporting by Lucas van Grinsven in London and Tom Johnson in New York)

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