Alcatel and Lucent agree €30bn merger

Alcatel and Lucent on Sunday sealed their eagerly awaited deal to create a world leading communications supplier with a promise to deliver €1.4bn ($1.7bn) in cost savings, partly through a 10 per cent cut in the combined 88,000-strong workforce.

Recognising that the heavy job cut programme could pose risks to the deal, Patricia Russo, Lucent chief executive officer, said the rationalisation would be handled with “prudent speed” and “clarity”.

Both companies have cut their workforces in half over the past five years as they struggled to recover from the end of the internet boom. On Sunday, unions in France, locked in a battle over labour reforms, were already denouncing the job cut plans.

The deal will also have to surmount possible political concerns in the US, where Lucent’s Bell Labs works on highly sensitive defence contracts.

Nevertheless, Ms Russo and Serge Tchuruk, executive chairman of Alcatel, were confident the risks could be overcome. A separate company with a US board would be formed to manage sensitive contracts run by Lucent and its Bell Labs research division.

Bringing Alcatel and Lucent together would create a company with sales of €21bn and a market value of €30bn, second only to Cisco of the US in the telecoms equipment business. The changing nature of the market, where big operators were merging to put greater pressure on suppliers, made “scope and scale” necessary, said Mr Tchuruk.

Ms Russo, who will be chief executive of the combined group, said the deal was “a compelling combination at a time when competition, consolidation and complexity are driving change”.

Alcatel/Lucent would rank in one of the top two positions in almost all of its markets, with a global lead in the convergence of fixed and mobile technology.

It would also command the industry’s biggest research and development capacity, with an annual budget of €2.4bn. Net debt was expected to stand at €1bn.

The companies agreed the final details of the plan late on Sunday. Alcatel will offer 0.1952 of its American Depository Shares for each Lucent share with the deal set to close in six to 12 months.

Although Alcatel shareholders will own 60 per cent of the combined group, the board will be divided equally with six directors each, plus two independent European directors to be agreed. Mr Tchuruk will be non-executive chairman. There is a €500m break fee for each company.

Meanwhile Alcatel said it continued to negotiate with Thales about injecting its own sensitive satellite business into the French defence electronics group in return for an enlarged stake. It is understood that talks with Franco-German EADS, which wants to contribute its own satellite interests into Thales as well, were continuing on Sunday.