Alcatel’s talks with Lucent about a possible takeover – a deal that would combine a telecoms equipment company that controls sensitive US technology with a French group – will face a regulatory review in Washington on national security grounds.

Such a move would come at a time when protectionist sentiment in the US is at an all-time high, and raises questions about whether the Bush administration would be prepared to approve the deal.

The merger, which is being driven by growing competitive pressure on equipment makers and could be valued at up to $36bn, would create the world’s leading maker of fixed telecoms networks and the second largest in mobile infrastructure.

It also follows in the wake of a wave of consolidation in the telecoms sector – in particlular between some of the companies’ biggest clients, including the proposed merger between AT&T and BellSouth and the recent takeover of MCI by Verizon.

The companies have provisionally agreed that Lucent’s chief executive Patricia Russo will succeed Alcatel’s 68-year-old Serge Tchuruk as chief executive when he steps up to chairman in June.

It is far from clear, however, whether a deal that is viewed as increasingly necessary for the two companies will be able to withstand Washington regulatory scrutiny. While US authorities may be concerned about the security issues surrounding Bell Labs, a revered US research facility, the French government is likely to welcome the deal if the headquarters remain in France.

However it will be keen to safeguard Alcatel’s sensitive interests, including its 9.5 per cent stake in defence electronics group Thales and the missile joint venture with Italy’s Finmeccanica. One option would be to sell these to Franco-German aerospace group EADS, which has long wanted to acquire Thales.

Even if the deal is presented as a merger of equals, regulatory experts say it faces an extensive review by the US Committee on Foreign Investments in the US, or Cfius, an inter-agency panel that investigates foreign acquisitions of US assets.

Lawmakers in the Senate are in the process of negotiating legislation that would make Cfius reviews even tougher and more lengthy.

The Dubai Ports World debacle, in which a Dubai-controlled company was forced to agree to sell port terminals it acquired after receiving regulatory clearance from Cfius because of a backlash in Congress, has, according to an attorney who works on Cfius deals, changed the balance of power of the panel.

An Israeli company, Check Point Software, was on Thursday forced to withdraw from a merger with a US group, Sourcefire, after the Bush administration raised national security concerns, underscoring that even the US’s closest allies are under close scrutiny.

Get alerts on US & Canadian companies when a new story is published

Copyright The Financial Times Limited 2022. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Comments have not been enabled for this article.

Follow the topics in this article