France's Alcatel SA (ALA) will acquire rival telecom equipment maker Lucent Technologies Inc. (LU) in a $13.4 billion (11.1 billion euro) stock swap that would form an industry powerhouse with a product line broad enough to entice customers in a consolidating telecom industry.

Company leaders said Sunday they plan to shed 10 percent of the combined work force — about 8,800 jobs — after the deal closes.

The combined business, to be based in Paris, will work to capitalize on fast-growing converged offerings such as "triple-play" Internet, phone and TV packages that have become popular in the telecom field, the companies said.

The new company will have annual sales of $25 billion (21 billion euros) — ahead of LM Ericsson's $19.9 billion (16.4 billion euros) — and an 18 percent share of the fiercely competitive market for telecom gear.

The tie-up will generate annualized pretax savings of $1.7 billion (1.4 billion euros) within three years, the companies said. Just over half the savings will come from job eliminations, with the rest by consolidating purchasing, research and development and support services such as sales and marketing.

The combination should add to per-share earnings in the first year, excluding restructuring charges expected to total about $1.7 billion (1.4 billion euros) and asset writedowns.

"Lucent was sooner or later going to have to do something to address the scale of their operations" to stay competitive, said George Calhoun, a business and technology professor at Stevens Institute of Technology. He said Alcatel needed "to become an A-list infrastructure company in the U.S. market."

The new Alcatel-Lucent — whose new name is to be announced later — should be better equipped to weather both intense competition in the telecom equipment market and pricing pressures from larger telecom service providers emerging from a new wave of consolidation.

The deal comes as the industry's major U.S. customers have been rapidly consolidating the telecom field. In the past year, the former SBC Communications Inc. bought AT&T Corp., while Verizon Communications Inc. acquired MCI Inc. Last month, AT&T Inc. — the name SBC chose after buying AT&T — proposed a $67 billion deal for BellSouth Corp.

"The newly formed company will be a key player in several key telecom markets," including services and wireless network equipment, Prudential Equity Group analyst Inder Singh wrote in a research note.

With about one-third of revenues coming each from North America, Europe and Asia, he wrote, the new company will have a geographic reach few competitors could match, likely forcing other mergers.

The companies said the deal's goal is significant growth in revenues and earnings based on "market opportunities for next-generation networks, services and applications."

Lucent CEO Patricia Russo, who will head the combined company from Paris, told analysts during a conference call that in product and service areas where growth is expected, "the combined company will be either No. 1 or No. 2."

Alcatel Chairman and CEO Serge Tchuruk will become non-executive chairman.

Alcatel and Murray Hill, N.J.-based Lucent had tried to merge once before, but talks ended without a deal in 2001.

This time, Tchuruk told the analysts, it was "the right time, the right solution, the right companies."

The 14-member board of directors will include Russo, Tchuruk, five of the current directors from each company and two new independent European directors to be mutually agreed upon.

Though Lucent and Alcatel sought to depict the deal as a "merger of equals," Alcatel shareholders will hold about 60 percent of the new company and Lucent shareholders 40 percent under the terms of the transaction.

Lucent shareholders won't see a premium over the current Lucent share price, which peaked at $84 before the telecom bubble burst. However, according to Singh, they will benefit from Alcatel assuming Lucent's pension and health-care obligations, which cover about 235,000 retirees and spouses.

Lucent shareholders will receive 0.1952 of an Alcatel American Depositary Share for each common share they own — worth $3.01 (2.48 euros) at Alcatel's Friday closing price of $15.40 (12.71 euros).

Lucent closed at $3.05 (2.52 euros) per share Friday, slightly above the offer value, but Chief Financial Officer John Kritzmacher said Lucent shares had risen recently on expectations of a deal.

"This is a very fair and equitable deal for Lucent shareholders and Alcatel shareholders," he said during the conference call.

Calhoun noted shares of both companies have risen since word of the deal leaked, an unusual outcome indicating Wall Street likes the combination.

Paris-based Alcatel has more revenues and employees, but Lucent is slightly more profitable. No details were given about where the job cuts would be, but Russo pledged to "take a fair and balanced approach."

The deal, which is set to be completed in six to 12 months, has been approved by the boards of each company and requires regulatory and governmental reviews in the United States, Europe and elsewhere, plus approval of both companies' shareholders.

To address U.S. security concerns about Bell Labs, the Lucent research arm that does sensitive work for the Pentagon, Alcatel and Lucent announced plans to form a separate, independent American subsidiary managed by a board of three American citizens vetted by the U.S. government.

Because of the recent Dubai ports controversy, Singh wrote, "we may see some lingering issues in Washington in regards to foreign investments."

He expects an extended review by the U.S. Committee on Foreign Investment, but no major antitrust issues.

The companies appear to have resolved a standoff over Alcatel's satellite activities, which Alcatel had planned to transfer to Thales SA in return for increasing its stake in the French defense electronics company.

The Thales deal, designed to answer French government concerns over sensitive military technologies, hit a snag when European Aeronautic Defence and Space Co. demanded its own Astrium satellite unit be included in the operation — with the reported backing of French President Jacques Chirac.

But the Alcatel-Thales satellite deal is now poised to go ahead without EADS, a person familiar with the talks said. Thales said it had called a board meeting Tuesday to examine "a project aimed at developing Thales and strengthening the existing partnership between Thales and Alcatel."

The person asked not be identified because the negotiations are confidential; a government spokesman declined to comment.