WASHINGTON, July 11 (UPI) -- Sometimes marriage can make a couple stronger than they could be on their own, while some unions end up being destructive for both parties. In the case of Alcatel tying the knot with Lucent Technologies, there are growing concerns that the French telecommunications equipment maker may be dragged down by its U.S. partner, much to the chagrin of Alcatel's investors.
Certainly, that was the concern of many of Alcatel shareholders Tuesday, as the company's share price fell despite the fact that the French group had announced the merger plan would allow it to slash 10 percent of its workforce, or about 9,000 employees worldwide, in an effort to lower operating costs. In addition, the company pointed out that the merger would allow up to $1.8 billion in pre-tax cost savings within the first three years of the deal.
In fact, so worried were Alcatel's investors about whether the Lucent buyout would be a prudent move or not that the French group's share price tumbled 6.3 percent Tuesday to close at 9.16 euros.
The concerns stemmed from the fact that after market close Monday, Lucent announced that it anticipates revenue for the third quarter ended June 30 to reach $2.04 billion, down from $2.14 billion posted in the second quarter and the $2.34 billion posted during the same period a year ago, citing lower mobile sales in the North American market. It also said that decreased revenues in China led to disappointing results in the latest quarter. A full earnings results report of the company will be released July 26.
"During the third quarter, our North American mobility business was adversely impacted by a slowdown in spending on some of our current-generation wireless solutions," said Lucent Technologies Chairman and Chief Executive Patricia Russo.
Yet at the same time, Lucent affirmed its commitment to go through with the deal with Alcatel that was first put forward in April, namely for the French manufacturer to buy out Lucent for about $13.4 billion in stock, which both companies said would lead to greater efficiency, cost-cuts, better research capabilities and generally improve their collective competitiveness.
Lucent said that the plan was still on track and should be completed by the end of this year.
"This merger will create a world-class team that will deliver the best of both companies to customers around the world, and will create enhanced value for shareholders," Russo stated, adding that "to that end, we are mapping each company's individual strengths to the changing market dynamics reshaping our industry and adopting best practices across the business of the combined company."
The result was that any good news of past performance on the part of Alcatel was cancelled out by fears about what the union between the two telecommunications equipment makers on either side of the Atlantic might actually mean.
To be sure, there is yet no guarantee that the merger between the two companies will actually happen, in part due to legal reasons. In the United States, for instance, Lucent remains a major contractor to the U.S. government and the military in particular, and by joining forces with a European corporation, there is concern that U.S. national security secrets might become accessible to a foreign entity. For its part, however, Lucent has stated that it will keep the government's military government contracts separate from the joint company's main operations, and security-sensitive deals will continued to be handled solely by U.S. citizens with the appropriate government clearances.
