Lucent, Alcatel seek US approval of merger
PHILADELPHIA (Reuters) - Lucent Technologies on Wednesday said it filed a formal notice to the Committee on Foreign Investment in the United States seeking approval for its US$10.4 billion purchase by France's Alcatel.
Alcatel on Wednesday also began a series of meetings with top investors to secure backing for the deal at shareholder meetings on Sept. 7. The value of the deal has dropped about 23 percent since it was announced in April amid a drop in the equipment companies' stock prices.
The deal has passed anti-trust scrutiny in the United States and Europe but the review by the Committee on Foreign Investment in the United States is critical. CFIUS, a 12-member interagency panel led by the US Treasury, must approve foreign acquisitions of US companies. advertisement
National security concerns have scuttled some deals, such as last year's bid by China's state-controlled CNOOC for oil and gas company Unocal. Other deals have won government clearance after the companies agreed to security-related concessions.
In a move to quell worries about the deal's effect on national security, Lucent has agreed to create a separate US subsidiary that would be run by Americans and would handle sensitive government contracts.
Lucent's government work includes an advanced communications system for the Defense Advanced Research Projects Agency, the Pentagon's technology incubator.
Lucent's crucial research and development arm, Bell Labs, has launched inventions ranging from transistors and lasers to cellular telephone technology, data networking and communications satellites.
Some US senators previously expressed concerns about the deal, saying it could threaten US national security or lead to job losses in their states. Some also have said they wanted more information about Alcatel's long-standing business relationships with Iran and Libya.
Alcatel upgraded Tehran's telecoms networks in a contract it won in 2001, built Iran's first high-speed DSL Internet network and now provides communications systems for gas plants there.
Most CFIUS reviews last for 30 days or less, but in some cases, such as acquisitions of sensitive technologies like telecommunications equipment, the review can be expanded into an investigation of up to another 45 days. Lucent declined to comment on the date of the CFIUS filing.
In addition to the CFIUS review, Alcatel and Lucent must win shareholder approval.
IS ALCATEL OVERPAYING?
Some media reports have suggested that hedge funds could vote against the deal. Some investors and analysts have said Alcatel is overpaying for Lucent, which posted a 79 percent drop in third-quarter profits amid lower sales of wireless network equipment in North America.
Dresdner Kleinwort analyst Per Lindberg recently said that Lucent's pension plan could be underfunded by as much as US$5 billion, which would make the deal more expensive than originally expected.
Lucent had US$34 billion in pension assets as of June 30, which is more than the US$28 billion that is required under the terms of the merger. Last year, Lucent said its pension obligations totaled US$31.3 billion.
Alcatel said on Wednesday it does not expect to make any pension contributions through 2007, and any required contributions from 2008-2010 would be unlikely to materially harm liquidity.
Susquehanna Financial Group analyst Joe Chiasson said the biggest concern to the deal is the cloudy long-term market demand for Lucent's wireless network infrastructure.
"The question of what Alcatel is getting from this deal grows larger each day," Chiasson said.
Chiasson said he still expects the deal to close, but Alcatel could revise try to revise the terms. The French company agreed to pay 0.1952 of an ADS (American Depositary Share) of Alcatel for each share of Lucent.
Alcatel could try to cut that exchange ratio to as low as 0.155 of an Alcatel ADS for each Lucent share, Chiasson said in a research report.
Shares of Lucent shed 3 cents, or 1.3 percent, to US$2.22 in afternoon trading on the New York Stock Exchange. Alcatel's American Depositary Shares dipped 4 cents to US$11.98 on the NYSE.
PHILADELPHIA (Reuters) - Lucent Technologies on Wednesday said it filed a formal notice to the Committee on Foreign Investment in the United States seeking approval for its US$10.4 billion purchase by France's Alcatel.
Alcatel on Wednesday also began a series of meetings with top investors to secure backing for the deal at shareholder meetings on Sept. 7. The value of the deal has dropped about 23 percent since it was announced in April amid a drop in the equipment companies' stock prices.
The deal has passed anti-trust scrutiny in the United States and Europe but the review by the Committee on Foreign Investment in the United States is critical. CFIUS, a 12-member interagency panel led by the US Treasury, must approve foreign acquisitions of US companies. advertisement
National security concerns have scuttled some deals, such as last year's bid by China's state-controlled CNOOC for oil and gas company Unocal. Other deals have won government clearance after the companies agreed to security-related concessions.
In a move to quell worries about the deal's effect on national security, Lucent has agreed to create a separate US subsidiary that would be run by Americans and would handle sensitive government contracts.
Lucent's government work includes an advanced communications system for the Defense Advanced Research Projects Agency, the Pentagon's technology incubator.
Lucent's crucial research and development arm, Bell Labs, has launched inventions ranging from transistors and lasers to cellular telephone technology, data networking and communications satellites.
Some US senators previously expressed concerns about the deal, saying it could threaten US national security or lead to job losses in their states. Some also have said they wanted more information about Alcatel's long-standing business relationships with Iran and Libya.
Alcatel upgraded Tehran's telecoms networks in a contract it won in 2001, built Iran's first high-speed DSL Internet network and now provides communications systems for gas plants there.
Most CFIUS reviews last for 30 days or less, but in some cases, such as acquisitions of sensitive technologies like telecommunications equipment, the review can be expanded into an investigation of up to another 45 days. Lucent declined to comment on the date of the CFIUS filing.
In addition to the CFIUS review, Alcatel and Lucent must win shareholder approval.
IS ALCATEL OVERPAYING?
Some media reports have suggested that hedge funds could vote against the deal. Some investors and analysts have said Alcatel is overpaying for Lucent, which posted a 79 percent drop in third-quarter profits amid lower sales of wireless network equipment in North America.
Dresdner Kleinwort analyst Per Lindberg recently said that Lucent's pension plan could be underfunded by as much as US$5 billion, which would make the deal more expensive than originally expected.
Lucent had US$34 billion in pension assets as of June 30, which is more than the US$28 billion that is required under the terms of the merger. Last year, Lucent said its pension obligations totaled US$31.3 billion.
Alcatel said on Wednesday it does not expect to make any pension contributions through 2007, and any required contributions from 2008-2010 would be unlikely to materially harm liquidity.
Susquehanna Financial Group analyst Joe Chiasson said the biggest concern to the deal is the cloudy long-term market demand for Lucent's wireless network infrastructure.
"The question of what Alcatel is getting from this deal grows larger each day," Chiasson said.
Chiasson said he still expects the deal to close, but Alcatel could revise try to revise the terms. The French company agreed to pay 0.1952 of an ADS (American Depositary Share) of Alcatel for each share of Lucent.
Alcatel could try to cut that exchange ratio to as low as 0.155 of an Alcatel ADS for each Lucent share, Chiasson said in a research report.
Shares of Lucent shed 3 cents, or 1.3 percent, to US$2.22 in afternoon trading on the New York Stock Exchange. Alcatel's American Depositary Shares dipped 4 cents to US$11.98 on the NYSE.
