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Monday, April 03, 2006

Alcatel & Lucent Merger : A Bold Move

Here comes the biggest merger announcement of the year. Alcatel & Lucent Technologies are coming together. The merger trend sweeping the telco operators is spilling over into the competitive equipment industry market.The giant merger brings a new trend of consolidation in the telecom equipment business and places Lucent CEO, Patricia Russo at the helm with a big challenge in terms of culturally integrating and busineswise integrating these two very big players. Alcatel and Lucent both make equipment that runs telephone and Internet networks. Newer entrants like Huawei & ZTE Corp. are playing the price game well and gaining market share. Like in other fields, the internet technology is also disrupting the established business models herein affecting old time players. The Telecom sector bears the brunt of this disruptive onslaught. In fact moving forward, telecom sector is expected to have the biggest upheaval owing to the disruption. Lucent, post its spin off by AT&T Corp tried to merge with Alcatel once before,unsuccessfully few years back. The combined entity hopes to be a global convergence leader with most comprehensive wireless, wireline and services portfolio in the industry. The operational synergies are expected to bring in a saving of $1.7 billion a year within three years. Clearly Alcatel is likely to play a stronger role in shaping the combined entity's future & with the shares of the new company planned to be listed in Paris, the signals are clear – its Alcatel swallowing Lucent. Natural synergies are said to be in here: 2/3rds of Alcatel sale happens outside of US and 2/3rd of Lucent sale happens within US. Remember its Bell Labs, part of Lucent that gets integrated into the new behemoth. How to allay the new found US concerns on foreign ownership? Here’s the answer: Partly in a bid to allay any U.S. national-security concerns, the combined company says it plans to form an independent U.S. subsidiary to handle certain American government contracts. This subsidiary would be separately managed by a board to be composed of three U.S. citizens acceptable to the U.S. government. Its another matter that a similar US- European corporate merger that happened several years back – Daimler Benz failed to meet expectations. The question is would becoming big deliver things? While the US, the global technology leader thus far is debating on bringing global talent, merger moves like this send a strong signal that in this changing world, holding on just so called national interests would be seen as a weak link in the highly competitive global wave of commercial success.

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