Alcatel, Lucent reportedly in merger talks

(Telephony) French vendor Alcatel is reportedly in discussions with Lucent Technologies to buy the troubled equipment maker for about $40 billion in stock, according to media reports.

Alcatel’s American depository receipts, traded on the New York Stock Exchange, slipped on the news, down more than 8% in afternoon trading after declining in afternoon trading on the Paris markets. Lucent’s shares were up almost 3%.

According to reports in today’s The New York Times, unnamed executives say the deal has a 50-50 chance of going through and could be announced by early June.

Nikos Theodosopoulos, managing director at UBS Warburg, said the deal is possible but would be difficult to pull off.

“The integration process would be quite complex and messy--[the two companies] have overlap in access and optical products,” said Theodosopoulos, who believes more layoffs of Lucent employees would be needed to achieve synergies.

The merger of the two corporate giants also could confuse customers from a migration-strategy standpoint and slow the rollout of next-generation new products, said Chris Ford, senior product marketing manager at Equipe Communications, a competitor of both companies in the core data switching platform market.

“The fact that two companies merge does not necessarily mean the salespeople stop competing,” Ford said.

Another argument against the combination is that Lucent shareholders probably wouldn’t receive much of a premium, Theodosopoulos said. Lucent has a market capitalization of about $34 billion, but Alcatel’s shares have dropped on the rumors and possibly would continue to do so if the deal is pursued, he said.

Although Alcatel has cash on its balance sheet and is in better overall financial shape than its troubled American counterpart--partly because only 20% of Alcatel’s sales come from the United States--the company’s stock has declined 45% since the beginning of the year.

This week, Alcatel’s long-term and short-term debt was put on credit watch with “negative implications” by ratings agency Standard & Poors after 360networks announced it was postponing a $1.1 billion order for a transpacific and a transatlantic submarine cable. Alcatel also has suffered substantial losses from a $700 million investment in shares of 360networks convertible stock.