Lucent, Alcatel Talk Merger

Lucent Technologies Inc. (LU) and French telecom equipment maker Alcatel SA (ALA) are discussing a business merger in what could be the start of consolidation among the companies that help power telephone and Internet networks.

The companies issued a joint statement late Thursday confirming the talks.

"We can confirm that Lucent and Alcatel are engaged in discussions about a potential merger of equals that is intended to be priced at market. There can be no assurances that any agreement will be reached or that a transaction will be consummated. We will have no further comment until an agreement is reached or the discussions are terminated."

A combination with Lucent would allow Paris-based Alcatel to expand its presence in the U.S. market and could trigger a new wave of consolidation among companies that make equipment for phone companies.

The companies have considered getting together before. In the spring of 2001, they were on the verge of a $23 billion merger, but the talks fell apart in a disagreement over how much control Alcatel would have.

News of the talks was reported online Thursday by The New York Times and The Wall Street Journal.

The Times, citing people close to the talks, reported that Alcatel was negotiating to acquire Lucent for about $12.6 billion. The Journal valued the "merger of equals" at $33 billion, quoting unnamed people familiar with the matter.

Consolidation among U.S. regional phone companies, including the proposed $67 billion acquisition of BellSouth Corp. by AT&T Inc., has created new pressure on equipment suppliers to combine operations.

Lucent's leadership in wireless technology, used by such major carriers as Sprint Nextel and Verizon Wireless, would complement Alcatel's leadership in DSL, or digital subscriber line, equipment used by phone companies that are growing their broadband business, the newspaper said.

For Lucent, a combination with Alcatel could represent a fresh start for a company that has gone through a remarkable boom-and-bust cycle in its 10-year history.

The giant telecommunications equipment company was spun off from AT&T Corp. (T) in 1996, instantly becoming one of the hottest stocks on Wall Street.

After a rapid rise as it bought up a few dozen smaller companies, Lucent became a Wall Street favorite, with its stock hitting a peak of $84 per share in December 1999. But the following year, the company began missing earnings targets and then had to restate previously released earnings figures as sales across the telecommunications industry dropped with the dot-com collapse.

By 2002, the stock had crumbled to a low of 58 cents. Lucent also was hurt by missing key market trends and financing lots of sales of its equipment to small companies that didn't pay it back.

The company was on the brink of collapse, but survived by cutting thousands of jobs and billions in debt.

Patricia Russo, one of Lucent's founding executives, was named president and chief executive in 2002 and engineered a turnaround plan that has slowly improved the company's performance.

Alcatel also has been gradually recovering from the telecom downturn. Like Lucent, it has shed jobs and streamlined operations since 2001. The company had sales of nearly $16 billion in 2005, with about half of that in Europe.

The world's largest provider of broadband Internet equipment, Alcatel aims to capitalize on demand for so-called triple-play services — telephone, Internet and TV — in the United States and Europe and to capture more mobile phone contracts in emerging markets.

Lucent shares closed unchanged at $2.82 Thursday on the New York Stock Exchange. Alcatel shares rose 10 cents to $15.45.