MEDIA WATCH: Lucent-Alcatel merger a good strategic fit, but worththe risk?

Former AT&T unit Lucent Technologies, was once a stock market


Lately, however, it is known as the Rodney Dangerfield of the telecom

sector - no respect.

The troubled company is in the midst of a mammoth restructuring program

and the sale of its fiber optics division. But when news leaked that

Alcatel of France was looking to buy not just the fiber optics division,

but the entire company, wires of a different kind sprung into


Media outlets had various opinions on the potential deal with some

concentrating on what the resulting company would look like. The San

Jose Mercury News (May 19) reported that the deal, "would create by far

the largest builder of communications networks in the world ... with

complementary optical and wireless product lines, a leadership position

in broadband Internet access, and strength in US, European and Asian


Analysts viewed the merger as a good strategic fit. Newsday (May 19)

wrote, "A deal would combine Lucent's strength in North America with

Alcatel's power in Europe."

But other media outlets devoted coverage to the woeful state of Lucent's

finances. Over the past 18 months, Lucent has seen about dollars 250

billion in market capitalization vanish into thin air (CNBC, May 21).

Reports examined Lucent's recent history which includes a series of

missed profit warnings, missed product cycles, investments in the wrong


It doesn't end there. The SEC investigated the firm for accounting

irregularities, it lost its CEO and CFO, it accumulated over dollars 12

billion in debt and vendor financing commitments and it flirted with

junk bond credit status.

And if you think that would keep crisis PR execs busy for a while,

consider that the media kept other missteps in the spotlight. For

instance; Lucent's bankruptcy rumors, 10,000 layoffs, another 6,000

positions outsourced, and claims of corporate espionage by its workers.

Could it look any worse?

So in light of Lucent's laundry list of troubles, it probably wasn't too

surprising that CNN (May 18) followed its announcement of Alcatel's

interest in buying Lucent with this: "The question, perhaps, is:


Reports made frequent mention of Alcatel's desire to expand its presence

in the US, but investors and analysts reacted coolly to the proposed


The New York Times (May 18) concluded an article by quoting an analyst

who said, "Alcatel would inherit a lot of headaches. It's not entirely

clear if the gain outweighs the pain."

In addition to Lucent's troubles, the media kept harping on the need for

regulatory approval on the Alcatel deal, which is likely to be a

drawn-out process due to Lucent's national security work for the US


Some of the coverage expressed the sentiment that the merger discussion

indicates just how bad things must be at Lucent. (May 23)

wrote, "The notion that Lucent, which until recently was the world's top

communications equipment maker, is considering a no-frills offer from a

second-tier French competitor marks a new low ... Alcatel's entry into

the script suggests things may be a bit worse off (at Lucent) than

investors have been led to believe."

Unofficial sources at the two companies place the odds of completing the

deal at 50-50, but coverage would appear to be giving more attention to

the naysayers. While the deal is presented as an opportunity for

Alcatel, the company must decide if it is worth the risk.

Evaluation and analysis by CARMA International. Media Watch can be found


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