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Lucent Deal Would Shrink Jobs

A merger with Alcatel may start a new wave of consolidationMurray Hill

A merger between Lucent Technologies and France’s Alcatel would likely cost more jobs in New Jersey’s dwindling telecommunications sector.

“There’s a lot of overlap between Lucent and Alcatel, and Lucent would be likely to bear the brunt of any layoffs,” says David Yedwab, executive vice president of The Eastern Management Group, a Bridgewater-based consulting firm that focuses on the telecommunications industry.

When Murray Hill-based Lucent and Alcatel—both providers of telecom equipment and services—announced late last month that they were deep in merger talks, they were simply confirming the market’s rumors. But even if the talks between the two fizzle—as a previous round did in 2001—experts say that consolidation in the beleaguered telecommunications equipment sector is only a matter of time.

That’s not good for New Jersey’s job market, which is already digesting the news that it will lose some 62 engineering positions at the end of April when Ciena, another telecom equipment company, closes its Shrewsbury plant as part of a national cost-cutting move.

The proposed Lucent-Alcatel transaction has been a long time coming, says Dave Fore, a telecommunications analyst with New York City-based SurTerre Research who last week issued a report praising it. He also says it’s not likely to be the industry’s last deal.

“Following numerous mergers in the telecom carrier space over the past year, the telecom equipment vendor space is in major need of consolidation,” he writes. “We expect that the Lucent-Alcatel deal is just the first of many to come.”

If it goes through, it would create a company with more than $25 billion in annual sales, ahead of Swedish giant Ericsson’s $19.4 billion and close to industry leader Cisco Systems, which posted $24.8 billion in 2005 sales. Although the two companies are touting the deal as a “merger of equals,” Alcatel’s $20.2 billion market capitalization of March 28 dwarfed Lucent’s $13.6 billion valuation, and a combined company would likely be headquartered in Paris, say analysts.

Lucent had about 6,400 employees in New Jersey at the end of 2005—a far cry from the glory days of 2000 when the firm had some 20,600 people working here. The decline was sparked by a combination of layoffs and the spinoffs of Avaya and other business units.

Nearly a week after the announcement about the Alcatel talks, Lucent shares were trading at just over $3.00, off a 52-week high of $3.49 but up from a one-year low of $2.35 reached on April 18, 2005.

Alcatel’s board met last week in Paris to discuss the deal. Lucent has said only that it is considering the offer. Meanwhile, in a faint echo of Dubai Ports World’s abortive attempt to take control of various U.S. port-management operations, concerns have been raised about putting all of Lucent’s operations in foreign hands.

Yedwab thinks security issues might complicate the transaction. “We might also see some kind of ownership or other changes to Lucent’s Bell Labs unit,” he says, “since that organization is heavily involved in sensitive military markets and the federal government is likely to want to keep it in U.S. hands.”

In fact, the Bell Labs question could scuttle the deal. U.S. Senator Frank R. Lautenberg (D-N.J.) is keeping an eye on the talks, according to Charles Walston, a spokesman in the senator’s Washington, D.C., office.

“Senator Lautenberg is concerned about potential security issues and any effect on New Jersey’s economy,” says Walston. “But the transaction’s still in the talking stage, so it would be premature to draw any conclusions.”

But even if that giant deal were to fall through, Fore has a list of other potential telecom M&A’s that includes such couples as Ericsson and Sunnyvale, Calif.-based Juniper Networks; Finland’s Nokia and Canada’s Nortel; or China’s Huawei and Nortel. He also thinks that Ciena could be an attractive takeover target.

Some observers may wonder why two AT&T spinoffs, Piscataway-based Telcordia and Bedminster’s Avaya, didn’t make Fore’s list. Yedwab says that’s because they’re really on the periphery of the scene.

“I don’t think that Telcordia and Avaya are going to be in play as acquisition targets,” he observes. “I also don’t see the Lucent-Alcatel merger affecting them, although Telcordia does sell software applications to service providers like Lucent.”

If Lucent is scooped up by Alcatel, it would be the latest step in a troubling trend in the high-tech segment, says Linda Klose, executive director of the New Jersey-Pennsylvania Council of AeA, a Washington, D.C. trade organization that represents electronics firms.

“We track the trends in technology jobs, and each year New Jersey loses out to neighboring states and to other countries,” says Klose from her office in Clark. “New Jersey makes it difficult for telecom and other businesses, with high levels of regulation and taxation, compounded by a high cost of living. The state has the advantage of an educated workforce, but we’re being clobbered by the other issues.”

Major Moments in Lucent’s History

Sept. 20, 1995 Then-AT&T Chairman Robert E. Allen announces plans to separate AT&T into three publicly traded companies.

Feb. 5, 1996 AT&T’s new systems and technology spinoff selects Lucent Technologies as its name.

April 4, 1996 Lucent’s initial public offering of 112 million shares of common stock is priced at $27 per share.

2001 Lucent posts $16.1 billion loss

for the year ended Sept. 30, lays off 39,000 employees.

2002 Lucent announces $11.8 billion loss for fiscal year. Predicts return to profitability in fiscal 2003.

2003 Lucent reports $770 million loss for fiscal 2003.

2004 Lucent earns $2 billion during fiscal 2004.

2005 Lucent posts net profit of $1.4 billion during fiscal 2005.

2006 On March 23 Lucent and Alcatel confirm they’re holding merger talks.

E-mail to mdaks@njbiz.com
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