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Posted on: Thursday, May 31, 2001

Alcatel still eyes U.S. expansion

By Jamey Keaten
Associated Press

PARIS — Alcatel SA's top executive yesterday said the French telecommunications equipment maker is still open to deals in the United States after its failed bid to buy U.S. rival Lucent Technologies Inc.

Merger talks between Alcatel and Lucent broke down Tuesday after days of intense negotiations.

A deal, reportedly valued at up to $32 billion, would have been one of the largest takeovers of a U.S. technology group by a European firm, and would have made Alcatel a major player in the U.S. market.

Alcatel chief executive Serge Tchuruk, speaking to reporters in a conference call, said he is still eager to develop the company's U.S. presence, but he is in no rush to strike other deals.

"Our objective to become a bigger player in the U.S. market is essential," Tchuruk said. "If opportunities arise ... why not? But we are not hunting for consolidation," he said. About 23 percent of Alcatel's revenues come from North America.

Tchuruk's renewed commitment to U.S. growth came shortly after the company warned its second quarter profits would fall short of expectations.

Alcatel closed down 1.59 euros, or 5.2 percent, at 29.26 euros in Paris trading. The company's U.S. shares were down $2.42, to close at $24.99, in trading yesterday on the New York Stock Exchange, where shares of Lucent were down 18 cents, to close at $8.14.

The companies did not say what led to the collapse of the talks, but sources close to the deal said management issues posed a stumbling block. Lucent officials apparently did not want Alcatel to have the upper hand in management of the combined company.

"As much as I would like to, I believe it's not advisable to talk about any of the reasons for the breakdown," said Tchuruk. "Alcatel does not need to consolidate to survive. We have strong fundamentals and we are gaining market share."

Murray Hill, N.J.-based Lucent, which was spun off from AT&T Corp. in 1996, is the second-most widely owned stock in America, owned by 5.4 million investors. The first is insurer MetLife.

Lucent's research arm, formerly known as Bell Labs, has been a wellspring of U.S. technological innovation over the years. Its 30,000 scientists have had a role in developing such landmark inventions as the transistor, the laser and superconductors.

But Lucent fell on hard times following a string of strategic missteps and profit disappointments that led to the ouster of chief executive Richard McGinn and a major restructuring. The company's shares are hovering at about one-tenth of their all-time high hit in late 1999.

Analyst Steven Koffler of First Union Securities said Lucent faces an uncertain future without the backing Alcatel would have provided.

"This is going to be tough because of a lot of internal problems they're having and because of the state of the industry right now," he said.

Eric Burkel, an analyst with Paris-Based brokerage Global Equities, said analysts had been concerned about the price Alcatel might have paid for Lucent at a time of slowdown in the industry.

"The operators will get bigger by the week, so this isn't going to stop consolidation, it will just delay it," he said.

Tchuruk said consolidation isn't the company's highest priority: "Today, the name of the game is managing the business."

As part of a new focus announced late Tuesday, Alcatel said it would pull out of the production of cellular handsets. The company had only about a 4 percent share of the market, which is dominated by Finland's Nokia.

In a statement released after a board meeting Tuesday, the company also predicted it will post a loss of $2.6 billion in the second quarter due to the restructuring and weakening market conditions.

Alcatel also forecast operating profits would come in above $85 million in the second quarter. It said it planned to focus on its carrier networking and optics businesses.