Alcatel Sells Off LGS Subsidiary, Weighs Others As Cost-Cutting Continues

Alcatel-Lucent said Friday it's selling off its U.S.-based subsidiary LGS Innovations as part of CEO Michael Combes' broader restructuring plan to cut costs and grow Alcatel's cash pile.

Paris-based Alcatel said LGS Innovations, which provides networking, satellite communications, VoIP systems and other solutions to the U.S. defense and federal markets, is being sold to an investor group led by Madison Dearborn Partners and including CoVant.

Alcatel said it will get up to $200 million in the deal. Meanwhile, according to a Reuters report Thursday, Alcatel also is weighing a sale of its enterprise telephony division, which employs about 2,800 people, by July 2014. The potential move would come three years after Alcatel sold its Genesys contact center unit, another staple of its enterprise networking business, to European private equity firm Permira for $1.5 billion.

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An Alcatel spokesperson declined to comment on the possible telephony division sale, citing a company policy of not commenting on "rumors or speculation."

Alcatel's divesture of LGS Innovations is part of what it calls The Shift Plan, a restructuring initiative rolled out by Combes in June that involves Alcatel selling off select assets, trimming its workforce and taking other cost-saving measures.

"We have, under The Shift Plan, made a firm commitment to divesting assets as and when the right opportunity arises for Alcatel-Lucent, and for the assets themselves," Combes said in a statement. "Today's agreement with Madison Dearborn and CoVant represents the right opportunity for Alcatel-Lucent and LGS Innovations."

Kevin Kelly, CEO of LGS Innovations, said the Herndon, Va.-based company views the divesture as an opportunity for LGS to expand its footprint beyond the federal space into markets including education, public safety and the enterprise. He also said LGS, which currently works with a select group of resellers and large system integrators, likely will leverage the channel as it looks to expand.

"Prior to divesture, LGS was not focused on reselling into any other industries or markets [besides federal government], but through this divesture, Alcatel-Lucent can set us up as another one of their channel partners in a non-exclusive way, meaning we can reach out to the rest of the market," Kelly said.

Under The Shift Plan, Alcatel is looking to generate 1 billion Euro, or $1.3 billion, in asset sales by 2015, while saving an additional $1.3 billion through workforce cuts and trimming sales, general and administrative expenses.

Alcatel said in October that it plans to cut roughly 10,000 jobs -- or about 15 percent of its global workforce -- as part of the plan.

Combes said The Shift Plan also will involve Alcatel refocusing its efforts around the company's IP Networking line.

The Shift Plan is the latest in a series of turnaround attempts made by the struggling Alcatel-Lucent which, according to The Wall Street Journal, has lost money almost every year since it was created in the 2006 merger of France's Alcatel and former AT&T equipment arm Lucent Technology.

David Carissimi, COO of Icon Voice Networks, an Irving, Texas-based solution provider and master distributor for Alcatel-Lucent, said he is optimistic about Alcatel's future under Combes' direction and Icon is seeing "tremendous" growth in its Alcatel business, with sales up roughly 20 percent in 2013.

"Things have only gotten better with Alcatel," Carrissimi told CRN. "There has been absolutely zero negative, and we have had countless face-to-face meetings with Alcatel. What we see is more energy, higher contact levels, and sales are up."

Carissimi, who said he had "no concerns" over reports of Alcatel eyeing a sale of its enterprise telephony business, added that he is particularly confident in Alcatel's emerging cloud strategy, at the center of which is the company's OpenTouch Suite For Cloud, a set of cloud-based unified communications solutions.

Alcatel said it expects its LGS Innovations transaction to close within the first quarter of 2014.