As the first anniversary of Alcatel's transatlantic takeover of Lucent Technologies Inc. approaches, a tentative verdict is beginning to emerge about the transaction: It's not looking positive.
Sales growth trails expectations, anticipated cost synergies haven't yet emerged, the integration of the two businesses appears problematic and market pressures continue unabated amid slowing capital equipment spending at telecommunication service providers. Add to that, repeated profit warnings due to an unrelenting squeeze on margins have combined to sour investors on the company's stock.
This wasn't what Serge Tchuruk, chairman of Alcatel-Lucent, and Patricia Russo, CEO, promised in April 2006 when they announced the transatlantic deal that merged the operations of Lucent with Alcatel's, creating the world's leading telecom equipment maker.
In fact, the optimistic words used then by Tchuruk to describe the transaction are coming back to haunt him. By most of the metrics cited by Tchuruk to justify the deal, it's easy to see why investors are disillusioned with the deal. During a conference call early in April 2006, Tchuruk promised that "the combination will be earnings per share accretive in the first year post-closing," and added that "the pictures are quite compelling."
Few agree after the company announced for the third time in four quarters recently that it would again miss its profit goal. Analyst Per Lindberg of Dresdner Kleinwort observed in a research report that "There is little doubt that the merger between Alcatel and Lucent has turned into a veritable fiasco," echoing sentiments popular in the investment community.
Investors are showing their disappointments with the deal in a much more vigorous manner. When the transaction was first announced on April 2006, Alcatel-Lucent had a combined market value of $36 billion, a number happily cited then by Tchuruk who said then he was convinced the deal "will go a long way to enhancing shareholder value."
Russo, at the time chairman and CEO of Lucent, echoed this sentiment saying that the transaction "provides us a tremendous opportunity to achieve significant financial synergies, enhance our financial position and create significant shareowner value."
That's not happening, and many analysts don't see Alcatel-Lucent's shares returning to the pre-merger levels anytime soon. On Monday (Sept. 17), Alcatel-Lucent's market value fell to $19.43 billion, down 44 percent in the last year.