Tuesday's collapse of merger talks between financially troubled Lucent Technologies and telecommunications equipment rival Alcatel SA leaves Lucent facing an uncertain future and may have cost the company its best chance at a deal that would erase those doubts, according to analysts.
Lucent needs to make more internal changes or find another merger partner to help it stay afloat, said Russell McGuire, chief strategist at consulting firm Telechoice. For now, he added, Lucent continues to lack a clear vision compared with its competitors and hasn't figured out how to effectively use the resources of its Bell Labs research arm.
But it might not be easy to find another company interested in teaming up with Lucent, McGuire said. "There aren't a lot of potential suitors out there," he said, noting that Lucent "has been unable to predict its own economic performance" and faces a need to find more cash because of its continuing losses.
Lucent and Paris-based Alcatel announced Tuesday afternoon that their negotiations "have not resulted in any agreements and have been terminated." The companies didn't say why a deal couldn't be reached, and officials at both Lucent and Alcatel declined to make any additional comments today.
Reports have circulated that Lucent rejected a deal partly because it would have had to give up management control to Alcatel instead of ending as equal business partners. Jim Slaby, an analyst at Giga Information Group said he would be "astonished [if Lucent] turned it down simply because it was shaping up to be an acquisition instead of a merger."
Had a deal been reached, Slaby said, it would have given Alcatel an increased market presence in the US. He predicted that Lucent will continue to struggle financially and will eventually be acquired, "but on less desirable terms" than it could have gotten from Alcatel.
Although there are some overlaps in the type of equipment that Lucent and Alcatel sell to telecommunications carriers, McGuire said, there are some product areas in which one company has a distinct advantage over the other. For example, he said, Lucent owns strong Asynchronous Transfer Mode switch technology that Alcatel "would love to have."
The talks with Alcatel followed Lucent's disclosure last month of an operating loss in its second fiscal quarter ended March 31 that was 60 per cent larger than Wall Street analysts had expected. The company has been wracked by losses, declining sales, management changes and layoffs since last fall, including the recent resignation of its chief financial officer.