Lights Out for Lucent

Upon occasion, a young fellow will approach and, with eyes eager for the knowledge that only experience can bring, will dare to inquire, "OK, Curmudgeonly Arms Man, how come you're so tough on management?"

To which will come, from the rheumatoid aches of a life fully lived in that mad state of mind known as Wall Street, the following sentiment: "Begone, young whelp, before I thrash you with this . . . " and I will chase him to the street with an upraised sheaf of worthless Lucent.

By such moments do the old now instruct the young, as yet another milestone is passed in the backward-rolling movie that has ended the longest and strongest bull market of American times.

We speak, of course, of the news last week that possibly the greatest company in the history of American technology - from whose fecund loins has sprung everything from the transistor to the laser, and a thousand other marvels in between - is just about ready to pack it in.

Best clue yet: that Lucent Technologies Inc. (LU) of Murray Hill, N.J., which in an earlier time was known to the world as AT&T's Bell Labs research center, is preparing - like just about any penny stock you can name - to undergo a one-for-20 reverse stock split to avoid being bounced from the New York Stock Exchange like a drunk from a bar, and tossed into the stumble-down gutter of a Nasdaq listing on its way to the Pinks.

How all this happened - one of the most damning chronicles of failure in the whole sweep of American enterprise - is not the story of lazy, over-indulged workers (the excuse of the 1970s). Nor is it the story of those scheming Japanese and their unfair trade in the American market a decade later (the excuse of the '80s).

At the end of the 1990s, we confront the excuse none dare utter - the total, complete, and abject failure of the one group that plotted and maneuvered to seize the reigns of power for 30 straight years; then, having gotten them, went giddy-up at the gate and in no time at all fell flat on its face: The management class of American business.

That is our story here, of Lucent Technologies and its struggles to stay listed on the New York Stock Exchange - a struggle that simply mirrors in microcosm the struggle of all of American business, from GM and GE at the top to your average OTC bulletin board swindle stock at the bottom, as they all now squirm to escape the cruel fate that is inept management's certain end.

Lucent began its life separate from AT&T via an April 1996 spin-off IPO that gave it, as we might say, every advantage. On the day it went public, Lucent was already the largest supplier of telephone equipment to the consumer market in America, and was a dominant competitor in the markets of 75 other countries around the world.

You could phone up Lucent and say, "Hey, I need you to build me a complete, state-of-the-art telecommunications network for the 21st century, from the ground up, with satellites in outer space and fiber cables under the ocean, and switches and hubs and all the rest of it -" and Lucent was just about the only company anywhere that could handle the entire job.

Not only that, it began life with an incredibly strong balance sheet, showing $2.2 billion in cash as well as $2.1 billion of working capital, and $4.50 per share of some of the most valuable equity on earth.

All this was bundled together in a New York Stock Exchange listing, making Lucent the class act in the field from Day 1, as compared to rivals that competed in only one or two market sectors and had their shares listed for trading on the Nasdaq electronic quotation system instead.

Frankly, it is hard to think of a circumstance in the entire history of modern business when the management of a public company had its opportunities teed up more perfectly than when Lucent Technologies was launched - equipped with money, prestige, customers, and a listing for its stock on the Big Board - to fend for itself in the midst of the greatest boom in telecommunications technology that man had ever known.

And just look at the pathetic, sick mess they've made of the place in the five short years since then. One of the great national treasures of American life, squandered and frittered away in one misbegotten undertaking after the next. About the only thing you can compare it to is the ruin of the Seagram Co. by its pinhead boss, Edgar Bronfman Jr., during pretty much the same time - but that's a story we'll save for another day.

As for Lucent, the self-destruction has been simply stupefying. That $4.50 per share of rock-solid equity has shriveled to 27 cents per share, and roughly a third of it consists of worthless goodwill. And every last dime of the company's equity will now be wiped out by plans announced by the company last week to take a $4 billion charge to the balance sheet in the fourth quarter.

The business itself has all but collapsed. Revenues have tumbled by more than a third in just the last year, and they are now running at roughly 30 percent below the levels prevailing at the time of the IPO.

Meanwhile, an unbelievable 45,700 workers have been laid off, reducing the company's worldwide headcount to barely 53,000 employees, vs. 124,000 at the time of the IPO. The company has already said it expects that number to shrink to 44,000 by the end of this year. And last week it announced plans to shed yet another 10,000 - which amounts, in percentage terms, to a roughly 25 percent cut in the workforce all over again.

The bumbling of the top brass through all of this has been almost sublime. The company's first CEO, Henry Schacht, passed Nero's fiddle to his hand-picked successor, Dick McGinn, who lasted in the job from October 1997 until October 2000 - by which time the bungling had gotten so bad the company's board of directors asked Schacht to take back his fiddle.

This returned Schacht to the Lucent corner office as a stand-in bungler while headhunters scoured the countryside looking for someone with just the right credentials. They found her in January in the person of Ms. Patricia Russo, an AT&T lifer who'd been part of the launch team for Lucent back in 1996, before escaping to Eastman Kodak as the bungling accelerated all around her.

End of bungling? Wall Street seems to think it's more like the end of the company instead. In the 10 months she's been on the job back in Murray Hill, Lucent's stock has tumbled from $7 to 70 cents, ending the week last Friday with a closing price of 68 cents per share.

Now, at the end of this five-year-long parade of grotesqueries, the company has announced - seemingly in desperation to keep from being ejected from the NYSE because its stock has now fallen below a dollar per share - that it will ask permission from shareholders at its February annual meeting to engineer a reverse stock split to get the price back up in the $10 to $12 range.

In other words, shareholders will be asked to surrender enough shares of "old" Lucent - which could well be at 50 cents per share by then - in order to get back a single share of "new" Lucent valued at, maybe, $10. That, of course, would work out to a one-for-20 reverse split - which is not much different from the sorts of gimmicks you see regularly pulled by Vancouver penny stock promoters to tighten up the market for some wretched mining stock that's being engineered into a reverse merger deal.

What a sad end for this once great company. And it looks to be almost at hand.