Tricky twosome P. B. Nageshwar What happens when a merged entity is left with two marketing managers or two sales heads? A case in point is the Alcatel-Lucent merger. During the merger, the smooth settlement of HR issues was on top of the agenda for both companies. They decided to deal with both pre-merger and post-merger integration issues by holding a series of meetings between the top HR executives at the two companies. Issues such as salaries and benefits, designations, and other sensitive structural matters were discussed thoroughly. Everything was planned around the Day 1—December 1, 2006— the day when the merger would become effective.
Says Ronald D’Souza, HR Head, Alcatel-Lucent India: “We knew that on Day 1, the company would have two senior executives heading the same function. So, we decided that the best man would continue to hold the designation and the other one would be either given similar options in regions such as China or Singapore or be asked to sit back for sometime before we found the right opportunity for him/her. ” And this is what exactly happened after the merger. The company also made it clear that it did not have solutions to every problem; so those who had major problems adjusting to the post-merger situation were given time to move on.
Ronald D’Souza Smart planning followed the initial communication. Before the merger, Alcatel was a major GSM player and Lucent a prominent CMDA player. “In order to retain the best human capital with us, the company tried to impart specific skills to employees on the best technologies of both the merged companies so that they could work on projects efficiently,” says D’Souza. Getting the point across In an M&A scenario, there is nothing called enough communication. Says P. B. Nageshwar, Head (Human Resources), Jones Lang LaSalle Meghraj: “When we decided to go for a merger, employees were anxious about their future.
While it was not possible to satisfy everyone, sufficient care was taken—by way of adopting a scientific, studied approach—to plan roles for them in line with the new environment and the aspirations of individuals. ” Jones Lang LaSalle merged with Trammell Crow Meghraj in 2007. The company tried to take the critical talent pool into confidence before, during and after the merger. Agrees A. V. K. Mohan, Group President (Global HR), Spice Corp. : “Many M&As have not fulfilled their objectives because senior managements failed to pay sufficient attention to the many human resource issues involved. Mohan was part of the Spice team when Idea Cellular acquired a controlling stake in Spice Telecom’s Karnataka and Punjab circles. He was also the Corporate Head (HR) with Digital GlobalSoft when HP acquired Digital GlobalSoft in 2003. What’s critical is that “good managers spend around 50-60 per cent of their time communicating with employees,” says Mohan. (http://businesstoday. intoday. in/index. php? option=com_content&task=view&id=7440) About Alcatel-Lucent Alcatel-Lucent’s vision is to enrich people’s lives by transforming the way the world communicates.
Alcatel-Lucent provides solutions that enable service providers, enterprises and governments worldwide, to deliver voice, data and video communication services to end-users. As a leader in fixed, mobile and converged broadband access, carrier and enterprise IP technologies, applications, and services, Alcatel-Lucent offers the end-to-end solutions that enable compelling communications services for people at home, at work and on the move. With more than 77,000 employees and operations in more than 130 countries, Alcatel-Lucent is a local partner with global reach.
The company has one of the largest research, technology and innovation organizations focused on communications — Alcatel-Lucent Bell Labs — and the most experienced global services team in the industry. Alcatel-Lucent achieved adjusted revenues of Euro 16. 98 billion in 2008, and is incorporated in France, with headquarters in Paris. Organization With a strong focus on complete solutions maximizing value for customers, Alcatel-Lucent is organized around four business groups and three geographic regions. The Application Software Group focuses on developing and maintaining innovative software products for its global customer base.
The Carrier Product Group serves fixed, wireless and convergent service providers with end-to-end communications solutions. The Enterprise Product Group focuses on meeting the needs of business customers as well as the Industry & Public Sector. The Services Group designs, deploys, manages and maintains networks worldwide. The company’s geographic regions are the Americas; Europe, Middle East, and Africa; and Asia Pacific and China. Innovation & Technology Alcatel-Lucent is one of the largest innovation powerhouses in the communications industry, representing an R&D investment of Euro 2. billion, and a portfolio of more than 26,000 active patents spanning virtually every technology area. At the core of this innovation is Alcatel-Lucent’s Bell Labs, an innovation engine with researchers and scientists at the forefront of research into areas such as multimedia and convergent services and applications, new service delivery architectures and platforms, wireless and wireline, broadband access, packet and optical networking and transport, network security, enterprise networking and communication services and fundamental research in areas such as nanotechnology, algorithmic, and computer sciences.
History The formation of Alcatel-Lucent created the world’s first truly global communications solutions provider, with the most complete end-to-end portfolio of solutions and services in the industry. Alcatel-Lucent combined two entities — Alcatel and Lucent Technologies — which shared a common lineage dating back to 1986. That was the year Alcatel’s parent company, CGE (la Compagnie Generale d’Electricite), acquired ITT’s European telecom business. Nearly 60 years earlier, ITT had purchased most of AT&T’s manufacturing operations outside the United States.
Lucent Technologies was spun off from AT&T. |Alcatel-Lucent History | |The formation of Alcatel-Lucent created the world’s first truly global communications solutions provider, with the most | |complete end-to-end portfolio of solutions and services in the industry. Alcatel-Lucent transcends national borders, with an | |extensive, well-balanced global presence in terms of resources and revenues, and one of the largest and most innovative R&D | |capabilities. |At the Origin of Telecommunications | |Alcatel-Lucent has been at the forefront of telecommunications since the birth of the industry in the late 19th century. The | |company’s roots span two continents and encompass two early pioneering companies — La Compagnie Generale d’Electricite (CGE) | |and the Western Electric Manufacturing Company. | |Western Electric began in 1869 Elisha Gray and Enos N. Barton started a small manufacturing firm based in Cleveland, Ohio.
By | |1880, the company had relocated to Chicago, Illinois and become the largest electrical manufacturing company in the U. S. | |Western Electric was noted for its production of a variety of electrical equipment, including the world’s first commercial | |typewriters, telegraph equipment and Thomas A. Edison’s electric pen. In 1881 the American Bell Telephone Company — founded by| |Alexander Graham Bell and forerunner of American Telephone & Telegraph (AT&T) — purchased a controlling interest in Western | |Electric and made it the exclusive developer and manufacturer of equipment for the Bell telephone companies. |La Compagnie Generale d’Electricite (CGE) was formed in 1898 by French engineer Pierre Azaria to compete against AEG, Siemens | |and General Electric. Based in Alsace region of France, CGE was an industrial conglomerate involved in various activities such| |as electricity, transportation, electronics and telecommunications. CGE would become a leader in digital communications and | |would also be known for producing the “TGV” (train a grande vitesse) high speed trains in France. |In 1925, Bell Telephone Laboratories was created from the consolidation of the Western Electric Research Laboratories, formed | |in 1907, and part of the Engineering Department of AT&T. Bell Labs would go on to generate some of the most significant | |scientific and technological discoveries of the 20th century, including the transistor, the laser, the solar cell battery, the| |digital signal processor chip and the cellular concept of mobile telephone service. Bell Labs researchers also would garner 11| |Nobel Prizes. |Also in 1925, Western Electric sold its International Western Electric Company subsidiary to ITT Corporation. CGE | |strengthened its leadership in digital communications in the mid-1980s when it bought the telecommunications part of ITT and | |changed the group’s name to Alcatel Alsthom. | |Changing and Expanding | |The mid-1980s marked significant changes and expansion.
In 1983, Alcatel Alsthom became one of the first foreign companies to | |establish itself in China, understanding the huge potential of the Asia Pacific market. Effective January 1, 1984, AT&T agreed| |to divest its local Bell telephone companies. As part of this divestiture, a new unit named AT&T Technologies (later to | |become Lucent Technologies), assumed Western Electric’s charter. | |The 1990s were a time of realignment and refocusing on telecommunications. AT&T launched Lucent Technologies in April 1996 | |with an initial public offering.
The spinoff was completed in September 1996 when AT&T distributed its shares of Lucent to | |AT&T shareowners. In 1998 Alcatel Alsthom decided to concentrate on the telecommunications industry —spinning off its Alsthom | |activities and changing the company’s name to Alcatel. | |Alcatel made significant acquisitions in North America at the end of the 1990s and in the early 2000s. Acquisitions included: | |DSC in 1998; Newbridge and Genesys in 2000; Astral Point Communications in 2002; and Spatial Communications in 2005. |In 2002 Alcatel took control of its flagship subsidiary Alcatel Shanghai Bell (ASB), with the Chinese government owning the | |rest of this enterprise. This structure allowed Alcatel to uniquely position itself in a Chinese market experiencing rapid | |growth. | |Looking Forward | |In 2006, facing an industry with intense competition and where operators were consolidating, Alcatel and Lucent Technologies | |announced plans to merge. |At the same time, Alcatel announced a deal to increase its shareholding and transfer its satellite subsidiaries, its railway | |signaling business and its critical security systems domains to Thales, a key player in the French defense industry. | |On November 30, 2006, the merger between Alcatel and Lucent was completed, creating the world’s first truly global | |communications solutions provider. | |To continue a long-term strategy of being at the forefront of the ever-evolving communications market, Alcatel-Lucent has | |entered into several joint ventures and made strategic acquisitions in key technologies. |The company acquired Nortel’s UMTS radio access business to strengthen its leadership position in this technology at the end | |of 2006. During 2007 the company continued its focus on wireline technology, software and services expertise with acquisitions| |of Canadian metro WDM networking supplier Tropic Networks, Inc. ; enterprise services gateway products developer NetDevices; | |IPTV software company Tamblin; and the telecommunications consulting practice Thompson Advisory Group, Inc. In addition, | |Alcatel-Lucent acquired Motive, Inc. a leading provider of service management software for broadband and mobile data services| |in 2008. | |The Alcatel-Lucent Vision, Mission and Values form the cornerstones of our company. These statements set the tone for the way | |the company operates. | |Our Vision – Definition of future success | |To enrich people’s lives by transforming the way the world communicates. | |Our Mission – Purpose and path to realize the vision | |To use our unique apabilities to ensure that our customers thrive, our business grows and we enrich the personal | |communications experience for people around the world. | |Our Values – A system of shared beliefs that are at the heart of everything we do. | |Customers First: We exist to serve our customers. Our success will be determined by how well we perform for our customers. | |Innovation: We are intuitive, curious, inventive, practical and bold, which allows us to create new ideas for our customers, | |our business and employees. These ideas come from anywhere throughout our global operations. |Teamwork: Success requires teamwork. We are collaborative and respect the contributions of each person to the team’s success. | |Respect: We are a global company with many cultures. We respect and embrace people and perspectives from all over the world. | |Accountability: We do what we say we will do. We own a collective responsibility towards customers, colleagues, communities | |and shareholders. | | | | | (http://www. alcatel-lucent. om) Alcatel-Lucent found its calling: supplying high-tech equipment for telecommunications networks. Supplying service providers, the company’s core carrier unit offers network switching and transmission systems for wireline and wireless networks, terrestrial and submarine optical systems, microwave radio products, and fixed access equipment. Its enterprise division provides corporate and government clients with unified communications systems, data networking gear, and contact center systems. Alcatel-Lucent’s application division develops IP television, payment, messaging, and mobile TV software.
The company’s services range from application and systems integration to managed services and maintenance. Implications The marriage of two ailing companies does not magically create one healthy company. A merger of this size needs at least 18-36 months to settle, and the competition will not wait that long. Analysis Lucent in particular was suffering badly before the merger was announced. They hadn’t really had a good year since the dot-com bust, and there was little prospect of things getting better. Alcatel seemed somewhat healthier than Lucent, but even they were not robust.
Merging two such companies can produce a single entity stronger and more competitive than either of the two original companies, but it requires a clear vision and ruthless execution throughout the merged company. Most of all, the vision must be accurate. The most critical element is a clear and correct understanding of the current positioning of both companies, of the competition, and of what steps are necessary to make the merged company competitive. Lacking such clear and correct understanding dooms the merger to failure.
The next stage is to develop and execute a plan to implement the vision. The plan must be both understanding of the dynamics of the workforce and ruthless in quickly implementing necessary cuts and re-structuring. The worst possible approach is to drag out the cuts, so the employees are always waiting for “the next shoe to drop”. This creates an environment where people are more interested in protecting their jobs than in making the company successful. The longer such an environment prevails the less likely it is that the merger will be successful.
Even with this approach it is still 18 months or more before the merged company can start to function as an integrated whole. Without this approach it can easily take 36 months or even longer. The tech world is littered with such failed mergers, while a few companies (Cisco comes to mind) have made a science of acquisition. It is clear at this point that the Alcatel-Lucent merger has failed at least in implementing necessary cuts, since there is continuing talk of cutting more jobs, which will have a powerfully damaging affect on employee morale and productivity.
Differing opinions are floating around as to whether Alcatel and Lucent management had (or have) a clear and accurate understanding of the dynamics of the market and merger, but the evidence to date is not encouraging. Repeated profit warnings strongly suggest a lack of understanding of at least some of the key components. A clear and accurate understanding would have allowed reasonably accurate quarterly forecasts. One quarterly miss could be forgiven, but not three out of four. At the same time, the competition (most notably Huawei) is rapidly gaining in strength.
If Alcatel and Lucent can execute the merger reasonably cleanly and produce a competitive company in 18-24 months that company should be able to compete successfully against Huawei and others. Certainly the Alcatel-Lucent combination has the products, technology and market to be successful. However, any slips in merger execution will open a window for the competitors that cannot be closed again. If the merger requires 36+ months to complete successfully Huawei and others may gain a lead that cannot be reversed.
If the merger is never done successfully, which seems quite possible at this point, Huawei and others will be permanent leaders and Alcalu will be condemned to a long and miserable slide into oblivion. (http://www. glgroup. com/News/Alcatel-Lucent-Merger-Problems-Continue-16770. html) PARIS – Not much has gone right in the two years since France’s Alcatel joined with its American counterpart Lucent to form a powerhouse in the telecommunications equipment business. Now executives who made the deal happen have run out of time to fix the problems.
Alcatel-Lucent’s Chief Executive Patricia Russo, who had said two months ago that she understood shareholders’ disappointment, did Tuesday what many shareholders had been demanding: She resigned, as did Chairman Serge Tchuruk, her co-architect in the 2006 merger of the French and American companies. “The time is right,” Russo said in a conference call. Russo finally succumbed to the failure of the $11. 4 billion merger to live up to expectations. Alcatel-Lucent’s stock price has fallen by more than 60 percent since the merger, the company has yet to post a profit and already it has tried massive job cuts. “Ms.
Russo ran out of turnaround plans, and Alcatel-Lucent’s board ran out of patience,” said James Post, a management professor at Boston University. At the company’s annual meeting in May, Russo – who had been running the AT&T spinoff Lucent before the deal – was greeted with jeers and whistles. Shareholders criticized her not only for the shares’ slide, but also for her demeanor, her inability to speak French and her salary. In 2007, she was paid 1. 8 million euros ($2. 8 million) including benefits. She will leave the company with a severance package equivalent to two years’ salary, or up to 6 million euros ($9. million), company spokeswoman Regine Coqueran said. Tchuruk, Alcatel’s longtime chairman and CEO before the merger saw him take on the non-executive chairman role, said in a statement that the resignations were aimed at giving Alcatel-Lucent “a personality of its own, independent from its two predecessors. ” Alcatel-Lucent shares jumped as much as 6 percent Tuesday as investors applauded the departures of Tchuruk and Russo. Alcatel-Lucent reported a net loss of 1. 1 billion euros ($1. 73 billion) in the second quarter, much worse than the loss of 586 million euros a year earlier.
The company wrote down 810 million euros ($1. 3 billion) in goodwill to account for the falling value of a unit that makes wireless networks. Alcatel-Lucent is in the middle of a painful restructuring that foresees 16,500 job cuts. (http://www. northjersey. com/business/industrysectors/26090634. htmll) PARIS—Boos and catcalls rained down on Alcatel-Lucent Chief Executive Patricia Russo as she addressed the telecom gear maker’s annual meeting in Paris on May 30. “You should all be embarrassed,” an elderly woman said, shaking a finger at the executives assembled in the cavernous Palais de Congres convention hall. But Mrs. Russo seems totally at ease, exactly what you’d expect from an American businesswoman. ” Alcatel-Lucent (ALU) is in big trouble, and Russo is catching serious flak. In France, the 56-year-old executive is viewed with suspicion as the first American, and the first woman, to head a blue-chip French company. In the U. S. , she’s vilified by many former employees of Lucent Technologies, where as CEO she oversaw a brutal downsizing before its merger with Paris-based Alcatel. All that is driving speculation that Russo may be headed out the door. There’s no denying that the numbers look terrible.
Since the 2006 merger, the $27. 5 billion company has posted six quarterly losses and has taken more than $4. 5 billion in writedowns, while its stock has plummeted 50%. “Nobody’s happy with our 2007 performance,” Russo acknowledges. Alcatel-Lucent has doubtless had some bad breaks. Economic turmoil and tight credit have crimped spending by phone companies, and competitors such as China’s Huawei are on the prowl. But other gear makers face similar problems, and they haven’t fared as miserably as Alcatel-Lucent. Telecom investment worldwide is set to rise 2. % to 5. 5% this year, while Alcatel-Lucent predicts its sales will decline by “low-to-mid single digits. ” The marriage of these iconic companies was never going to be easy. True, Lucent’s U. S. strength in the wireless business nicely complemented Alcatel’s global footprint and its prowess in fixed-line and broadband. But the cultures could hardly have been more different. One was hierarchical and centrally controlled, the other entrepreneurial and flexible. What may surprise critics of France’s hidebound corporations is that Lucent was the rigid one.
An offspring of the AT&T (T) monopoly, it retained a command-and-control style, and after years of restructuring, executives were so obsessed with cost-cutting that even the smallest purchase had to be logged into a central accounting system. Because most sales were to longtime customers, Lucent’s marketing unit was weak. “It was a slow-moving ship with an entitlement mentality,” says John Wright, a former Lucent vice-president who now works at Intelligent Compression Technologies, a Quincy (Mass. ) software group.
Alcatel, by contrast, operated almost like a loose federation, with country managers reporting little more than annual results to Paris. And its marketing organization was 10 times larger than Lucent’s, though sales were only about 50% greater. The French company had a deft touch with acquisitions, says Paul Lacouture, a former vice-president at Verizon Communications (VZ) who worked with both Alcatel and Lucent before and after the merger. “[Lucent’s] purchases didn’t seem to go as well,” he says. Russo was under pressure to merge these organizations quickly to achieve $2. 6 billion in efficiencies.
Despite her tough reputation, Russo brought a more collaborative style to headquarters near the Arc de Triomphe. She learned enough French to make brief speeches in the language. And she surprised colleagues by dropping into their offices to talk—a contrast with the former CEO and current chairman, the coolly formal Serge Tchuruk. A Loss of Precious Time Seeking to head off conflict, Russo set up a 14-person executive committee, roughly balanced between ex-Alcatel and ex-Lucent managers. Bad move. “We had monthly videoconference calls that would go on for three, four, five hours,” recalls one participant.
After 11 months, Russo cut the group to seven members, but valuable time had been lost. Customers, uncertain about the new company’s products, were getting picked off by competitors, so Alcatel-Lucent resorted to deep discounts that ate up profits. Alcatel’s loose management style, meanwhile, created its own problems. “Lucent had one accounting system, but Alcatel must have had 20,” a former Alcatel-Lucent top executive says. The result: a steady drip-drip of profit warnings as problems came to light. Not all the news is bad. On June 16, Alcatel-Lucent won a $1 billion contract with China Mobile, the mainland’s biggest wireless operator.
But profits from Alcatel-Lucent’s U. S. cellular business are meager, and longtime customers Verizon and Sprint Nextel (S) are shifting to new technologies where the company lags. Outside the U. S. , Huawei has pulled nearly even with Alcatel-Lucent as the No. 3 supplier of GSM cellular networks. Now, Alcatel-Lucent is under attack in its traditionally strong fixed-line business as Huawei picks up key customers such as Britain’s BT (BT). Can Russo hang on? Shareholders on May 30 voted to let directors remove the CEO by a simple majority rather than the previous two-thirds.
The company described the change as a housekeeping measure, but it means the six former Lucent members on a board of 14 can’t protect Russo if Tchuruk and others decide she should leave. Russo insists the board still backs her—and that shareholders should, too. “Our focus as a management team is on executing our plan,” she says. “And we are aligned with the board on that plan. ” On July 29, shareholders in telecommunications equipment giant Alcatel-Lucent (ALU) finally got what many have been demanding for months: the resignations of Chief Executive Patricia Russo and Chairman Serge Tchuruk.
Russo, the former boss of Lucent Technologies before its 2006 merger with Alcatel, said she’ll step down before the end of the year, while former Alcatel chief Tchuruk will leave Oct. 1. “The company will benefit from new leadership aligned with a newly composed board to bring a fresh and independent perspective,” Russo said, in announcing the changes, which will include a downsizing of its 14-member board. The telecom gear maker’s latest quarterly results, also issued July 29, underscore just how tough a job the new leadership team will face. Alcatel-Lucent posted a $1. billion quarterly loss, including a $1. 3 billion writedown on the North American wireless business inherited from Lucent. Quarterly revenues were down 5. 2% year-on-year, to $6. 5 billion, and the company warned that spreading economic malaise in Europe could further dampen sales. “We may see some weakness in spending” by fixed-line phone and broadband operators, traditionally a strong business for Alcatel-Lucent, Russo said in a conference call with journalists and analysts. Alcatel-Lucent shares, which have sagged 60% since the merger, remained largely unchanged in July 29 trading after the news.
The $27. 5 billion company hasn’t posted a profit since the merger. A Tricky Transatlantic Merger What went wrong? Can it be fixed? And if so, who can fix it? Although Alcatel-Lucent characterized the departures of Russo and Tchuruk as the end of a “transitional phase,” the move reflects deep disappointment in a merger that both promised would create a global powerhouse. “We were not very keen on the rationale behind the merger in the first place, and we’ve been disappointed with the progress management has made in executing it,” says Richard Windsor, a London-based analyst with Nomura International.
Or, as French newspaper Le Monde succinctly put it in a front-page headline on July 29: “The resignation of Alcatel-Lucent’s top executives signals their failure. ” Like other makers of telecom equipment, Alcatel-Lucent has been clobbered by slowing economies—as well as by brutal price competition from newcomers such as China’s Huawei Technologies. But it has been further handicapped by the difficulty of carrying out a tricky transatlantic merger (BusinessWeek, 6/18/08). Hinting at Board Changes New management and a revamped board won’t improve the overall market situation.
But industry-watchers predict the company will bring in a CEO and new board members with few ties to either Alcatel or Lucent. That could help clear away the entrenched interests and Franco-American politicking that have weighed on the company. “It is clear something fundamental has to happen,” says a top European telecommunications executive who knows Alcatel-Lucent well. Although the company didn’t give details, it hinted at forthcoming board changes in announcing that Henry Schacht, a former Lucent chairman and CEO, would immediately step down.
Until now, the board has been carefully balanced between ex-Alcatel and ex-Lucent representatives. What about the CEO’s office? One name already circulating is that of Ben Verwaayen, a Dutch-born industry veteran who has just stepped down as CEO of British telecom BT Group (BT) after leading a widely praised turnaround there. Verwaayen was vice-president for international operations at Lucent from 1997 until jumping to BT in 2001, but because of his long career in Europe, he was never considered an insider at the largely U. S. -focused Lucent. Verwaayen declined to comment on the speculation. Russo’s Big Incentive
Some in France are pushing for a local turnaround artist such as former Finance Minister and ex-France Telecom (FTE) boss Thierry Breton, who now serves as an adviser to private equity giant Kohlberg Kravis Roberts. (Breton wasn’t reached for comment. ) But Alexandre Peterc, a Paris-based analyst at Exane BNP Paribas, says that would be a big mistake. “If we get someone from the typical French establishment, there would be no change,” he says. Russo, for her part, had an incentive to leave by the end of this year. Under a bylaw change adopted at the annual shareholders’ meeting (BusinessWeek. om, 5/27/08), she’s entitled to a severance package of almost $9. 5 million if she departs before Dec. 31. After that date, she would have received no severance pay unless the company met revenue and profit targets, which it has failed to do since the merger. Despite the coming change in leadership, Russo says the company’s overall thrust remains the same. “Our strategy has taken hold,” she said in the conference call. “I’m pleased with the progress that we’re making in a very difficult market. ” Indeed, there were some glimmers of good news in the mostly dismal second-quarter results.
Postmerger cost cuts yielded wider profit margins in most of the company’s businesses. And despite the writedown in its North American wireless operations—stemming mainly from reduced spending by a key customer, Verizon (VZ)—wireless revenues look set to grow in other markets such as India and China. That’s a start. But Alcatel-Lucent’s new management will still have a long way to go in persuading investors and customers that this would-be global champion is back on track—or whether it was even worth forming in the first place. (http://www. businessweek. com/globalbiz/content/jul2008/gb20080729_701831_page_2. t) | | | | |A Alcatel-Lucent anunciou, hoje, que os prejuizos dobraram no primeiro trimestre, face ao periodo homologo, devido a queda da procura de | |equipamentos de telecomunicacoes. | | | |A previsao dos analistas contactados pela Bloomberg era de perdas no valor de 270,9 milhoes de euros.
As receitas cairam 6,9% para 3,6 mil | |milhoes de euros. E o decimo trimestre consecutivo que a Alcatel-Lucent regista prejuizos. | | | |Este “vai ser um ano de transicao”, afirmou o CEO da Alcatel-Lucent, Ben Verwaeeyen. “A nossa orientacao vai manter-se e estamos a tomar | |medidas”, acrescentou. | | | |Em Dezembro, Verwaayen, CEO da Alcatel-Lucent, comecou um plano para cortar 2 mil milhoes de euros de despesa em dois anos, chegando os cortes| |de postos de trabalho aos 17. 00. A Alcatel-Lucent ja perdeu 8. 5 mil milhoes de euros depois da fusao. | | | |A Alcatel-Lucent esta a desvalorizar 3,63% para 1,885 euros no mercado frances mas ja esteve a cair 7,46% hoje. | |(jornal de noticias) | Alcatel-Lucent losses worse than feared Robert Lindsay Ben Verwaayen, the former BT chief executive trying to revive Alcatel-Lucent, he French telecom equipment group, stuck to his forecast of breakeven for this year, despite revealing a deeper €358 million (? 317. 7 million) first-quarter loss than expected. Mr Verwaayen said: “We are not pleased with the loss,” though he emphasised that it was in line with his expectations given tough market conditions and a seasonal slump in demand. “Our guidance for the year remains unchanged and we are taking appropriate action. ” He added that the company should return to net profits in the second half of the year, delivering breakeven for the year as a whole.
The huge French telecom equipment maker, formed from a merger with Lucent, the American company, is battling falling demand from the world’s telecom companies as the recession forces them to put new investment in broadband and mobile infrastructure on hold. First-quarter sales fell 7 per cent to €3. 6 billion and the adjusted operating loss was €254 million, against an operating profit of €36 million in the year-ago quarter. The shares, which are listed in Paris, fell about 5 per cent in early trading. Top of Form Bottom of Form
Alcatel said that it continued to expect the global telecommunications equipment and related services market to decline by between 8 per cent and 12 per cent at constant currencies in 2009. Mr Verwaayen, who took the helm last September after leaving BT, announced a turnaround plan in December, which included laying off 1,000 management positions and reducing the number of contractors it uses by 5,000. Its debt pile, which has soared in the quarter from €389 million to €841 million, should be eliminated by the imminent sale of its 21 per cent stake in Thales, the French defence company, for €1. billion. Mr Verwaayen said falling demand was mainly felt in North America, which saw a 28 per cent sales fall, while those in Asia Pacific dropped by 8 per cent and in Europe by just 1. 5 per cent. Ben Verwaayen returns for revival mission at Alcatel-Lucent Adam Sage in Paris Ben Verwaayen emerged from the swimming pool of his home in Provence yesterday to take up the challenge of transforming Alcatel-Lucent, the troubled telecommunications giant, into a streamlined service provider.
After surprising the City when he quit BT at the end of May, the Dutchman was named chief executive of the loss-making group formed in 2006 from the merger of Alcatel, of France, and Lucent, of the United States. Analysts said that Mr Verwaayen, 56, would be in the driving seat despite the appointment of Philippe Camus, formerly chief executive of EADS, the European aerospace and defence group, as chairman. The architect of BT’s revival faces a tough ride at a company in the throes of cutting 16,000 jobs amid evidence that Lucent’s portfolio was oversold and that its customers will continue to hold down investment. Top of Form
Bottom of Form He told Le Monde that after three months swimming at his house in the Luberon, he was ready for the challenge of heading a company also handicapped by mutual distrust between its French and American employees. Mr Verwaayen said that he aimed to turn Alcatel-Lucent from a “product-orientated business into a service-orientated business”. His focus is likely to be on the management of fixed and mobile networks in an attempt to generate stable revenue to offset falling product sales. Mr Verwaayen will receive a basic salary of €1. 2 million (? 975,000) a year, as well as a performance-related bonus of up to €1. million. He will also receive 2. 25 million shares and options. The appointment comes after the departure in July of Pat Russo as chief executive and Serge Tchuruk as chairman, amid investor fury over a tie-up that suffered from aggressive price-cutting by competitors in a shrinking market. Alcatel-Lucent’s share value has slumped by 60 per cent since the mergerm, with six successive quarterly losses, the latest of €1. 1 billion. Alexander Peterc, an analyst at Exane BNP Paribas in Paris, said: “There is no magic recipe but the conditions are easier than they were in the beginning.
The restructuring plan has been drawn up and the worst is probably behind the company. “Ben Verwaayen is likely to make some changes to strategy but I don’t expect him to throw it out of the window and start again. I don’t think there will be a clean break. ” Architects of Alcatel-Lucent merger resign Heath Aston Thierry Breton, France’s former Finance Minister, is being touted as a leading candidate to take the helm of Alcatel-Lucent, the world’s largest telecoms equipment supplier, after Patricia Russo, its US chief executive, and Serge Tchuruk, its French chairman, both announced their resignations.
However, Mr Breton, who was chief executive of France Telecom before he joined the French Government in 2005, may face opposition from American board members over his proximity to the Parisian political establishment, sources said. Alcatel-Lucent began the hunt for a new chief executive after Mrs Russo, 56, threw in the towel amid growing criticism of her management of the group formed in 2006 by the merger of France’s Alcatel and Lucent of the US in 2006.
In a statement, she announced she would quit before the end of the year in a move which signals the fall from grace of an industrialist often hailed as one of the most powerful women in the world. Top of Form Bottom of Form Top of Form Bottom of Form Mr Tchuruk, 70, the respected French business leader who headed Alcatel for 11 years before engineering what was effectively the takeover of its American rival, will step down in October. Already under fire from shareholders following a 60 per cent fall in the value of Alcate-Lucent stock since the merger, Mrs Russo, who earned €1. 3 million last year, faced further anger yesterday over her €6 million severance package.. Didier Cornadeau, president of the French Association of Active Small Shareholders, described the golden handshake as a scandal. “It’s much too much… especially given the damage she has done. ” Mr Tchuruk, who received €5. 6 million compensation under the terms of the merger, will not receive a golden handshake. Investors and analysts gave a broad welcome to the resignations which they said could herald a fresh departure for the troubled Franco-American group. Most had been expecting Mrs Russo’s departure, but not that of Mr Tchuruk.
Gregory Olszowy, an analyst at IT Asset Management in Paris, said: “This is indeed very good news. Their departures show the merger has not worked. ” He urged Alcatel-Lucent to slim its mobile telephone divison and focus on fibre optics and the land-line business. “It will be difficult for Alcatel-Lucent to win out against Ericsson or Nokia,” he said. The merger was designed to create a critical mass amid competion from the likes of China’s Huawei Technologies, with savings in research and development costs and a stronger negotiating position with telecom operators.
But it has foundered as operators, particularly in US, have slashed investments – fuelling the belief amongst investors that Lucent was overpriced in the deal. Critics say management has also failed to overcome deep Franco-American cultural differences which have hindered integration. Mrs Russo’s inability to speak French was seen in Paris as symbol of the gulf. “The problems existed already before the takeover of Lucent, which has only made the situation worse,” said Mr Olszowy. The failure was underlined today as the company reported a net loss of €1. billion for the second quarter after taking a €810 million goodwill writedown. This compares with a €586 million loss for the same period last year and is the sixth successsive quarterly loss. Alcatel-Lucent, which made a net loss of €3. 52 billioni n 2007, reported revenue second quarter revenue of €4. 1 billion, down 5. 2 percent, and said sales would stagnate or decline in the third quarter. Analysts said the group could move to sell its 20. 8 per cent stake in Thales, the French defence electronics group – worth about €1. 5 billion – following Mr Tchuruk’s departure. Alcatel-Lucent: 18 months of losses Heath Ashton 001 – Alcatel and Lucent first attempt to merge to create one of the world’s largest telecom equipment makers but talks fail over who would take control of the combined business. December 2006 – Discussions between Alcatel and Lucent, culminating in a merged business with a market capitalisation of €30 billion. May 2007 – The company marks its first quarter as a merged entity by announcing a €13 million loss. July 2007 – Alcatel-Lucent reports a second quarter loss of €336 million. October 2007 – The merged company unveils €258 million in third quarter losses, and announces plans to cut 16,500 jobs across the group.
The board at Alcatel-Lucent is forced to reaffirm support for Patricia Russo, chief executive at the group. January 2008 – Fourth quarter losses reach €2. 58 billion. February 2008 – Alcatel-Lucent scraps its dividend. April 2008 – Losses at the group continue, reaching €181 million in the first quarter. Alcatel-Lucent forecasts sales will fall this year. July 2008 – Alcatel-Lucent losses reach €1. 1 billion in the second quarter. Ms Russo and non-executive chairman, Serge Tchuruk, resign. (http://business. timesonline. co. uk/tol/business/industry_sectors/telecoms/article4423720. e) Alcatel-Lucent Loss Widens on Weaker Phone Demand (Update2)
Share | Email | Print | A A A By Vidya Root [pic] May 5 (Bloomberg) — Alcatel-Lucent SA, the world’s largest maker of fixed-line networks, said its first-quarter loss more than doubled as the global economic slump eroded demand for telecommunications equipment. The net loss swelled to 402 million euros ($537. 5 million) from 181 million euros a year earlier, marking the 10th straight quarterly deficit. It was wider than the 270. 9 million-euro median loss prediction, according to 10 analysts’ estimates compiled by Bloomberg. Revenue fell 6. 9 percent to 3. 6 billion euros, Paris-based Alcatel-Lucent said in a statement.
This “will be a year of transition,” Chief Executive Officer Ben Verwaayen said on a conference call today. “Our guidance for the year remains unchanged and we are taking appropriate actions. ” Alcatel-Lucent reiterated its goal of a break-even adjusted operating profit this year and net income in the second half of 2010. Verwaayen, who has been CEO since September, started a plan in December to slash 2 billion euros of expenses over two years, bringing job cuts to 17,500 since Alcatel SA bought Lucent Technologies Inc. in 2006. Alcatel-Lucent has lost about 8. 5 billion euros since the merger. Alcatel-Lucent rose 0. percent to 1. 96 euros in Paris. The company’s market value has tumbled more than 18 billion euros to 4. 5 billion euros since the November 2006 completion of the merger, which was aimed at fighting off competitors including Ericsson AB and Huawei Technologies Co. Workforce Reductions The company has cut 290 managerial positions this year and reduced the number of contractors by 770 as part of the plan unveiled by Verwaayen in December. Competitor Ericsson, the world’s largest maker of wireless phone networks, last week said first-quarter profit declined 35 percent on costs to eliminate jobs.
The Stockholm-based company’s CEO, Carl-Henric Svanberg, said customers in some markets postponed spending and that some operators are “more cautious” with long-term investments. The telecommunications equipment market will slump 8 percent to 12 percent in 2009 at constant exchange rates, Alcatel-Lucent said today. The company suffered from writedowns in the wireless-equipment business, restructuring costs, spending cuts by clients including Sprint Nextel Corp. and competition from Ericsson and Huawei, China’s biggest phone- network equipment maker. ‘More Conservative’
Deutsche Telekom AG, Europe’s biggest phone company, said last month it is freezing 1 billion euros of capital expenditure as customers canceled fixed-line phones. TeliaSonera AB, Sweden’s largest phone company, said it may cut spending, while Telefonica SA and Vodafone Group Plc said in March they will share wireless network sites to save money. “Clients are more conservative, they’re making use of the equipment they already have,” Verwaayen said on the call. He said the company is seeing stronger orders in North America and the Asia Pacific region.
Alcatel-Lucent aims to achieve net income in the second half of 2010 and for the full year in 2011, Paul Tufano, hired in November as chief financial officer, reiterated today. Technology Shift Verwaayen said Alcatel-Lucent has no plans to leave the business of making wireless-communications equipment. The company suffered as the wireless-network market shifted away from the older version of code division multiple access, or CDMA, a standard Alcatel-Lucent dominated, toward the global system for mobile communications, or GSM. CDMA and GSM are so- called second-generation technologies. We are winning massive contracts with the transition from 2G to 3G in China,” Verwaayen said. The company will focus its research and development on optical, Internet protocol, broadband and applications areas, while reducing spending on older technologies, he said. Alcatel- Lucent is cutting manufacturing, supply chain and procurement costs, and focusing on improving the product mix. The company will spend about 60 percent of its research and development budget on next-generation systems this year, up from about 40 percent in 2008, Verwaayen said at a press conference in Paris today.
Previously head of BT Group Plc, Verwaayen was named CEO by Alcatel-Lucent’s board on Sept. 2. Philippe Camus, co-managing partner of Lagardere SCA, was appointed chairman. They replaced former Lucent CEO Patricia Russo and Alcatel Chairman Serge Tchuruk, the architects of the 2006 merger. (http://www. bloomberg. com/apps/news? pid=20601087&sid=aQDkJd_oN. vM&refer=home) Alcatel-Lucent chief defends decision to keep division By Andrew Parker in London Published: January 27 2009 22:50 | Last updated: January 27 2009 22:50
Ben Verwaayen, chief executive of Alcatel-Lucent, has strongly defended the telecoms equipment manufacturer’s decision to retain its loss-making unit that builds mobile network gear. Mr Verwaayen said the unit – which makes network infrastructure based on third generation wireless technology called WCDMA to enable web surfing and other data services on mobile phones – was valued by the company’s customers. He also said the WCDMA unit was an important part of Alcatel-Lucent’s efforts to develop 4G technology called LTE that will enable faster web surfing on mobiles.
Alcatel-Lucent – like other telecoms equipment makers – is braced for falling sales this year as the economic downturn deepens. Nortel became the sector’s first significant casualty of the downturn this month by filing for bankruptcy protection. Mr Verwaayen was appointed chief executive of Alcatel-Lucent in September and last month unveiled a turnround strategy for the company, which recorded a net loss of €3. 5bn ($4. 6bn) in 2007. After warning that the sector’s sales could fall by 8-12 per cent this year, Alcatel-Lucent is seeking to break even at operating profit level.
Industry analysts say performance would be a deterioration on 2008. However, by 2011, Alcatel-Lucent is seeking an operating margin in the mid to high single digits. “I will give it my all to make sure that we arrive at that stage,” Mr Verwaayen said. “We have been ambitious in our strategy, but prudent in our financials. ” Although the company does not disclose operating results for its WCDMA unit, analysts estimate it has been running up losses since the troubled merger between France’s Alcatel and Lucent of the US in 2006.
The company said in October that it had halved the losses, but declined to quantify them. Mr Verwaayen, who declined to say when the unit would be profitable, used his strategy announcement last month to promise more investment in WCDMA technology. Some analysts have concerns about Alcatel-Lucent’s relatively weak position in the 3G mobile network gear market based on WCDMA compared to its rivals – Ericsson, Nokia Siemens Networks and Huawei Technologies. WCDMA has underpinned the most widely used 3G gear in the world.
Alcatel-Lucent’s strength is in 3G gear based on CDMA 2000 technology – which is much less popular than WCDMA. Per Lindberg, analyst at MF Global, has argued that Alcatel-Lucent should sell its WCDMA unit. But Mr Verwaayen said the company had more than 50 customers using its 3G gear based on WCDMA technology “that really value what we’re doing”. They include AT&T, the leading US mobile operator. The WCDMA unit’s losses were compounded by how it was producing three different product lines at the time of the merger. The three have since been reduced to two.
Alcatel-Lucent upbeat despite losses By Andrew Parker Published: February 4 2009 08:40 | Last updated: February 4 2009 20:09 Alcatel-Lucent, the Franco-American telecoms equipment maker, expressed confidence, on Wednesday, that it could hit its future profitability targets in spite of notching up its eighth consecutive quarterly loss. The company recorded a net loss of €3. 9bn ($5bn) for the fourth quarter of 2008 after writing down the value of its assets sharply because of the “drastic deterioration” in the global economic outlook. Alcatel-Lucent’s shares closed up 3 per cent at €1. 0 on Wednesday. The results for the three months to December 31 were slightly ahead of the market’s expectations. Ben Verwaayen, Alcatel-Lucent’s chief executive since September, said he was “encouraged” by the operating performance. Alcatel-Lucent’s adjusted operating income, which excludes charges including costs related to the 2006 merger between its French and US predecessor companies, increased from €110m in 2007 to €466m in 2008. In December, Alcatel-Lucent forecast that sales by all telecoms equipment manufacturers will decline by 8 to 12 per cent in 2009.
On Wednesday, Mr Verwaayen expressed confidence that the company would hit its targets to break even at the adjusted operating profit level in 2009, and for the gross margin to be 35 per cent in 2010. Nortel, the Canadian telecoms equipment maker, became the first high-profile casualty in the sector last month when it filed for bankruptcy protection. Alcatel-Lucent reported revenue of €5bn for the fourth quarter, down 5. 4 per cent on the same period in 2007. The company’s net loss widened, from €2. 6bn in the fourth quarter of 2007 to €3. 9bn in the same period last year.
The increased loss was the result of a €3. 9bn impairment charge. The company is writing down its goodwill and other intangible assets following its forecast of falling sales by all telecoms equipment manufacturers in 2009. Alcatel-Lucent took a total impairment charge of €4. 7bn for 2008, which meant it recorded a net loss for the full year of €5. 2bn, compared with €3. 5bn in 2007. The loss per share increased from €1. 83 in 2007 to €2. 31 in 2008. For the second year running, there was no dividend. The company’s revenue fell 4. 5 per cent last year to €17bn.
In the fourth quarter, Alcatel-Lucent’s carrier division, which supplies fixed-line and mobile phone operators with telecoms equipment, saw revenue fall 11. 8 per cent to €3. 3bn. Mr Verwaayen tried to reassure investors by outlining progress with Alcatel-Lucent’s efforts to cut costs by €750m by the end of 2009. The company’s net debt fell from €600m at September 30 to €389m at December 31, and Mr Verwaayen said the company was likely to sell some unwanted assets. The pension scheme moved from a €3bn surplus at September 30 to a €429m deficit at December 31.
Can Alcatel-Lucent afford grand technological dreams? By Paul Betts Published: February 2 2009 19:34 | Last updated: February 2 2009 19:34 Since taking charge at Alcatel-Lucent, Ben Verwaayen may have restored some morale at the troubled Franco-American telecoms equipment maker, which this week is expected to report more net losses in 2008 and almost certainly produce a repeat performance in 2009. For the moment at least, the transatlantic tensions between the group’s French and US camps appear to have faded.
Mr Verwaayen says he wants to turn Alcatel-Lucent into a “normal company”. He is also dismissing the idea of making extravagant acquisitions – or even picking up some of the Nortel pieces that are likely to come on the market as a result of the Canadian group’s collapse. So far, so good. But many, who know the industry well, are worried that Mr Verwaayen has barely settled down in his Paris office and already appears to have been seduced by the old Alcatel illusions of technological grandeur. Mr Verwaayen’s strategy is to simplify the group and make it more responsive to clients.
In his view, this means keeping a presence in both fixed-line and wireless telecoms: the group is betting its research resources heavily on fourth generation wireless technology. It is targeting a whole series of innovative ventures to improve mobile phone communications. The problem for many analysts is that they fear that Alcatel-Lucent does not have the necessary resources to compete against the true wireless giants such as Cisco Systems of the US and Sweden’s Ericsson. In happier times, Mr Verwaayen might have been absolutely right in wanting to devote his research resources to new, cutting-edge wireless technologies.
Indeed, the recent sale of Alcatel-Lucent’s stake in Thales, the French defence and civil electronics group, has given him a bit more cash to play with. But given the global crisis and the retrenchment of investment spending among the telecom operators, he should perhaps temper his enthusiasm. Instead, he could use the crisis to transform Alcatel-Lucent by focusing on the group’s traditional core business – fixed-line – and by turning it into a leader in systems integration. Investors must be asking similar questions, judging by the company’s recent stock market performance.
Since unveiling his grand strategic plan just before Christmas, Alcatel-Lucent shares have continued to underperform the market and in particular Cisco and Ericsson. Cross-border alliances Fiat’s proposal to acquire a 35 per cent stake in Chrysler has set off all sorts of speculation over a massive new wave of consolidation in the car industry. The latest was a report in a French newspaper on Monday, that Peugeot Citroen and BMW were considering an alliance. A delegation from the Bavarian premium car manufacturer recently visited the offices of the French presidency at the Elysee Palace for talks with French civil servants.
But BMW on Monday said the discussions focused on the development of electric cars and not on any new industrial co-operation between the Germans and Peugeot-Citroen. That said, it is no secret that the French family-controlled car group, like many of its international peers, is scouting around to forge new alliances given the financial, marketing and environmental challenges facing the sector suffering one of its worst post-war cyclical downturns. But unless times have so dramatically changed, it is hard to see an eventual merger between Peugeot and BMW.
Recent examples of Franco-German industrial co-operation have hardly been encouraging – the endless frictions between Paris and Berlin at EADS, the aerospace and defence group; the decision by Siemens, the German industrial engineering group, to pull out of its nuclear joint venture with France’s Areva; and the cross-border tensions in the pharmaceutical sector. In the case of its strategic car industry, there is also a famous precedent of the French preference for all-French deals. Back in the 1970s, Michelin considered shedding control of Citroen to Fiat to focus on its core tyre business.
Francois Michelin was summoned to the Elysee Palace by General de Gaulle, who after greeting him with an icy come sta in Italian, made it clear he was not amused at the idea of Citroen coming under the influence of Italy’s Agnelli family. Fiat never took control of Citroen which Michelin went on to sell to Peugeot. Recently there has also been much speculation of Fiat and Peugeot forging closer ties. But the Turin group, in a hurry to make a strategic consolidation move, clearly felt it was easier to deal with the Americans.
If history were to repeat itself, for all the talk of new cross-border alliances, the most likely outcome could turn out to be the old dream of some French politicians of an all-French merger between Peugeot-Citroen and Renault. Alcatel-Lucent’s European solution Published: September 2 2008 09:31 | Last updated: September 2 2008 20:28 Ben Verwaayen has a taste for tough nuts. He cracked one, with BT. Can he do it again with Alcatel-Lucent? A former Lucent executive, Mr Verwaayen’s tenure at BT for more than six years was, by most measures, a success.
True, the bloom may have come off the rose somewhat with the most recent results under BT’s new boss, but the markets have a short memory. From 2002 onwards, BT’s business was changed for the better. Mr Verwaayen championed the cause of global services, nudged the old BT to embrace change, even though it threatened its bread and butter telephony business. He also navigated tricky regulatory waters while shareholders received a rising dividend. Does that make him the right person, along with newly appointed chairman Philippe Camus, to dig Alcatel-Lucent out of its self-inflicted hole?
He has not had to steer a company through the bruising experience of a cross-border merger. But the new top team’s international credentials are as impressive as they come, which should help. It may be, however, that too much has been made of the culture wars at Alcatel-Lucent. There are two bigger problems and they should play to Mr Verwaayen’s strengths. First, the nitty gritty integration has to be finished off. These include reducing the company’s complexity in mobile platforms. It also means showing sceptical investors that Alcatel-Lucent’s improving operating performance is more than a blip.
The second issue is a longer-term one: how to lead Alcatel-Lucent as it faces new and intense competition from China and new demands from the telecoms operators that are its clients. Alcatel-Lucent has some strong cards: a great presence in fixed-line technologies, and scale. Mr Verwaayen’s job is to ensure that this legacy is harnessed to a credible vision. He can claim he has done it before. This challenge is even greater Alcatel-Lucent braces for storms at annual meeting By Paul Betts Published: May 15 2008 19:25 | Last updated: May 15 2008 19:25 pic]Alcatel-Lucent is bracing itself for a stormy annual meeting at the end of this month. But the beleaguered Franco-American telecommunications equipment and network group seems to be taking pre-emptive action to avoid the meeting degenerating into an unseemly shouting match. Shareholders are furious at the way the company has managed to lose €20bn ($31bn) off its value in the two years since it was formed by the merger of the French Alcatel and the US’s Lucent. Multiple profit warnings have been putting intense pressure on Serge Tchuruk, the group’s veteran French chairman, and Pat Russo, its US chief executive.
The rationale of the original merger has increasingly been questioned and the fate of the Tchuruk-Russo duo has been looking pretty uncertain. Their positions are now looking more precarious following the board’s decision to propose a resolution at the AGM that would make it easier to make top management changes. A two-thirds majority in the board is needed to revoke the chairman and the chief executive. If, as expected, the resolution is approved, just a majority will be required to change the top management. This means the Alcatel representatives on the board would then have the power to push out Ms Russo.
But it also means Lucent board representatives could return the favour by voting out Mr Tchuruk. Until now, this would have been impossible without the combined votes of French and American directors. For the time being, however, there does not appear to be any imminent move inside the board to oust the top management duo. Some even argue that management has been doing a good job in a very difficult environment. Others are very critical. But it is clear that if a tangible recovery does not emerge by the end of the year, it is difficult to see how the two top executives can continue in their jobs.
The resolution will make it easier to topple them – if and when the time comes. But in the short-term it is also designed to try to pacify angry shareholders who were expected to put forward a similar motion at the AGM. Influential shareholders on both sides of the Atlantic have become fed up with the top management duo and would be pleased to see them go. The problem is that this is not that easy. Not so much because of any resistance from within, but because there does not seem to be anyone around prepared to jump into these two hot seats. Godfather steps in
Claude Bebear, often described as the godfather of French capitalism, stepped down as chairman of AXA a few weeks ago after a long and successful career. But he has clearly not gone into retirement. Yesterday, the 72-year-old former insurer waded into what is turning into a bitter confrontation between French management and Anglo-Saxon activists. The interesting thing is that Mr Bebear, who has long criticised short-term speculative investors, is in this case taking the side of the activists. The London fund Centaurus and the New York-based Pardus have accumulated a 22. per cent stake in France’s Atos Origin information technology services company. They want to nominate representatives on the company’s board and have been trying to influence management to sell the company, or at least bits of it. Management, led by Philippe Germond, its relatively new chief executive, has been working to turn the business round and wants to remain independent. They accuse the two funds of seeking creeping control. But Mr Bebear says that management’s hostility is misplaced in this case.
He argues Centaurus and Pardus have shown they are not short-term investors but in for the longer term. They thus do not qualify as speculators, according to Mr Bebear. He even goes as far as accusing Atos management of behaving as if they, and not the shareholders, owned the business by refusing to consider board representatives for the company’s two biggest shareholders. He also criticises the more general trend emerging in French, and European business, whereby managers automatically turn hostile on the arrival of more active investment funds in their share capital.
Managers, instead, should now be attempting to understand the intentions of their investors with an open mind. At the same time, they should be helping other shareholders to decide how to vote on resolutions at AGMs. In principal, it is difficult to fault Mr Bebear’s argument. Companies belong to shareholders. But the confrontation at Atos is by no means clear-cut. Pardus and Centaurus may well have given undertakings to stay for five years to soothe concerns about their designs. Yet if the real purpose is to force the break-up of the group, these undertakings may turn out to be irrelevant.
Shareholders will have to take this into consideration when they cast their votes at what promises to be a turbulent Atos AGM. Alcatel-Lucent new chief vows to heal rifts By Peggy Hollinger in Paris nd Andrew Parker in London Published: September 2 2008 08:59 | Last updated: September 2 2008 18:54 Ben Verwaayen, the new chief executive of Alcatel-Lucent, on Tuesday pledged he would not “take any prisoners” in his battle to end the cultural and management rivalries that have dogged the Franco-American telecoms equipment supplier since its ill-fated merger two years ago.
Three months after quitting as head of UK group BT, Mr Verwaayen stepped up to one of the most challenging jobs in the telecoms industry with a pledge to accelerate integration and innovation in the group created from the merger of France’s Alcatel and Lucent of the US. He will replace Pat Russo, the American-born chief executive who, along with French non-executive chairman Serge Tchuruk, will step down after six consecutive quarters of losses. Mr Tchuruk will be replaced on October 1 by Lagardere executive Philippe Camus, an experienced hand at managing internal rivalry after having been the French co-chief executive of Franco-German EADS.
The new team insisted the first task was to deliver the benefits that had been promised at the time of the merger and to create a truly integrated company. Many investors and analysts blame the group’s problems not just on an aggressively competitive market, but on the strained relationship between Ms Russo and Mr Tchuruk, and on deep discontent in the French camp at the botched integration. “I am not going to take any prisoners on issues of sensitivity here,” Mr Verwaayen said. “We have a job to do. Of course I will be respectful – I speak French – but we are one company. In a concession to investor anger over the €6m ($8. 7m) payoff to Ms Russo, Mr Verwaayen has refused any compensation element in his remuneration package. “If the board thinks the colour of my hair doesn’t fit, they can fire me tomorrow,” he said. Mr Verwaayen will receive a salary of €1. 2m, and a bonus of up to 200 per cent depending on performance. Though Mr Verwaayen stressed it was early days, his plans are unlikely to mark a significant rupture with Ms Russo’s strategy to be present in both fixed and mobile markets. We need to be where the customer wants us to be,” he said. However, he indicated tough decisions would be taken about where to invest in a company spanning 19 businesses and 130 countries. Though Mr Verwaayen is well-regarded by the market, some investors were disappointed that the board finally chose him over former Alcatel executive Mike Quigley, and the group’s shares edged back. Alcatel-Lucent in biggest loss since merger By Peggy Hollinger in Paris and Paul Taylor in New York Published: February 8 2008 07:42 | Last updated: February 8 2008 18:34
Alcatel-Lucent on Friday reported its biggest quarterly loss since its creation in 2006, scrapped its dividend and substantially wrote down the value of the Lucent Technologies wireless network assets. Patricia Russo, chief executive, warned that the outlook for the group, the world’s largest telecoms equipment manufacturer, remained uncertain, that it would have an operating loss in the first quarter and forecast adjusted operating margins of between 2. 5 per cent and 5 per cent for 2008. In the latest quarter Alcatel-Lucent reported a loss of €2. 58bn ($3. 4bn), up from €615m a year earlier. Sales were better than expected, up 18 per cent at €5. 23bn. Excluding €2. 52bn of writedowns, the loss was €48m. The losses and the asset write-downs underscore the scale of the problems facing the Paris-based company and will fuel the continuing doubts over the wisdom of the merger. Alcatel acquired Lucent Technologies in December 2006 in what was then called “a marriage of equals”. Alcatel-Lucent since announced plans to cut a total of 16,500 jobs, including 6,700 which went last year, bringing the number of employees at year-end to 77,400.
Nevertheless, the cuts have failed to compensate for price competition and falling orders. Alcatel-Lucent’s market value has plunged €13. 5bn since the merger, dropping below the book value of shareholder funds, and forcing the group to undertake asset impairment tests. Alcatel-Lucent said it had taken an asset impairment charge of €2. 94bn, including about €2bn to cover the reduced value of Lucent’s CDMA (code-division multiple access) network unit. Lucent was the market leader in CDMA technology. “That is a mature market that in general we think will continue to decline as the years go forward,”
Ms Russo said at a news conference. Despite the asset write-downs, Ms Russo rejected the view that the charges showed Alcatel had overpaid for Lucent. She added she was not considering another restructuring, in spite of worsening market conditions. The company has forecast that job cuts and other cost savings will reduce annual costs by €1. 7bn after three years, and produce savings of €600m this year. “This was the largest merger in our industry and it proved to be more difficult than expected,” she said. Ms Russo again denied reports Serge Tchuruk, chairman, was about to resign.
Are wrong heads rolling in Alcatel-Lucent revamp? By Peter Smith Published: October 31 2007 19:03 | Last updated: October 31 2007 19:03 [pic]Hard questions were asked and harsh words spoken last month at an extraordinary meeting of the Alcatel-Lucent board. Although directors did not go as far as describing the merger of the French and US telecom equipment groups as an expensive failure, they were clearly unhappy with the clumsy manner in which the transatlantic merger has been executed so far and the embarrassing succession of profit warnings that have unsettled investors.
As a sign of how angry and worried they had become, they asked Patricia Russo, the chief executive, and Jean-Pascal Beaufret, the chief financial officer, to leave the boardroom for part of the meeting so they could more freely discuss the performance and possible futures of the two top executives. At the time Ms Russo promised to come up with new answers to the group’s problems by the end of October. On Wednesday she announced she would be cutting another 4,000 jobs on top of the 12,500 already announced, as well as a streamlining and tightening of the company’s management team.
So far Ms Russo and Serge Tchuruk, Alcatel-Lucent’s veteran chairman, have survived but Mr Beaufret is leaving. On the surface, this seems no different to what has been happening at Ericsson. The Scandinavian rival ditched its CFO this month after shocking the markets with a profit warning that sent its shares down 24 per cent in one day. The Ericsson CFO appears to have paid the price for some accounting issues that contributed to the unexpected profit warning. In Alcatel-Lucent’s case, there has been no mention of accounting problems.
If anything, Ms Russo seems to have gone out of the way to pay tribute to the departing CFO. She praised his “experience and dedication” and added that before the merger he was instrumental in the financial turnround of Alcatel. So why is he leaving? Fund managers and analysts were clearly disconcerted by the decision. One said that Mr Beaufret, who before joining Alcatel ran the French tax administration, had done a “decent job under very difficult circumstances”. Another said that he considered Mr Beaufret to be “one of the best CFOs in the industry”.
A third suggested that investors would probably have preferred Ms Russo rather than Mr Beaufret to pay the price of the three profit warnings. Mr Beaufret was even asked to take a conference call with investors on Wednesday. He told them: “Pat has tightened her management team and chosen the people with which she wants to work. ” The question is, did Mr Beaufret decide he had had enough and follow in the footsteps of two other well-regarded senior managers – Mike Quigley and Frank D’Amelio – who decided to leave this year? Or is he being made a scapegoat to give Ms Russo – and for that matter, Mr Tchuruk – a further reprieve?
Surely, if the main problem at Alcatel-Lucent continues to be merger integration and strategy, the can should be carried by the CEO and the chairman who were so keen to combine in what has turned out to be a most expensive and disappointing marriage. So far, unfortunately, the wrong heads seem to have been rolling at Alcatel-Lucent. Wrangling in Auckland At least 10 bidders took a close interest in Auckland Airport but after six months of wrangling it all came to nothing when the New Zealand group on Wednesday called off talks with Canada Pension Plan Investment Board.
Last month, Dubai Aerospace Enterprise’s plan to buy a majority of the airport group, which had secured board backing, collapsed in the face of local hostility. After so much picking over Auckland Airport’s accounts and a desire among leading investors to keep the group majority-owned by New Zealanders, it is hard to see a fresh bid emerging soon. New Zealanders feel they have been short-changed in the past when the government sold off the family silver too cheaply to foreign investors. Worse, some of those deals failed to serve the locals well.
The board said when it ended the talks that the Canadian fund’s plans would have laden the group with a lot more debt, constraining its ability to grow organically and via acquisition. Unlike some of the country’s other privatised assets, Auckland Airport has served shareholders well. It was privatised in 1998 with shares offered at an equivalent of $NZ1. 60 apiece. After taking into account a four-for-one share split and capital payments to shareholders in the intervening years, that has been converted into more than $NZ12 a share, says chairman John Maasland.
Shareholders would be wise to think twice if a fresh bid does come along. (financial times) Verwaayen, a Dutchman who will work in Paris, may have what it takes to bring the two cultures together, as he has previously worked for both Alcatel and Lucent. Before his six-year stint as CEO of BT, Verwaayen was vice-chairman of the management board of Lucent, while in the 1980s he worked at ITT, a predecessor of Alcatel. Camus, who is French but resident in the U. S. , will also be well placed to smooth over cultural differences between Lucent’s historic base in North America, and Alcatel’s in France.
Much has been made of the cultural differences between Alcatel and Lucent. But analysts say both companies have extensive presence beyond France and the U. S. and are already true multinationals. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York. The merger hasn’t worked out quite as expected and the partnership of Russo in the CEO position and Tchuruk, the chairman, has been problematic, according to observers who said the company struggled with integration issues as cultural differences sparked intense rivalry between the North American entity and the European organization.
Additionally, Alcatel Lucent has faced difficulties as the telecommunications equipment industry continued to weaken. Cultural differences The difficulties of integrating a French company with an American one dominated during Russo’s tenure, with analysts suggesting the corporate culture of Lucent clashed with Alcatel’s French business model. One source close to the company saw little evidence of cooperation between the two factions from the outside.
Furthermore, the fact that management from the junior partner, Lucent, was handed leadership is understood to have caused resentment within Alcatel; at a shareholder’s meeting earlier this year, Russo was met with jeers and was heavily criticised for her inability to speak French and her high salary. Analysts believed that rewarding the target company’s management with overall leadership was a bewildering decision and that bringing in independent directors should have been at the top of Alcatel-Lucent’s list of priorities.
Gartner research director Sylvain Fabre suggested Alcatel-Lucent must now refocus its business to find a way out of its current predicament, but believed it would need to do this sooner rather than later. He believed a turnaround was possible, but warned that the next CEO would have to be from outside the company with no vested interest or historical ties to either party. It would be helpful, he added, if they were not French or American. Completely different As businesses, Alcatel and Lucent might be a commercial match made in heaven. But their respective pension plans are worlds apart.
For starters, Lucent, based in Murray Hill, N. J. , has $34 billion in defined benefit assets centrally run by its wholly owned subsidiary Lucent Asset Management. As of Sept. 30, the company’s combined three pension plans – one covering management employees, the second for other U. S. -based employees, and a third for non-U. S. employees – had a $2. 69 billion surplus. The overflow allowed Lucent to declare $973 million in pension benefit credits toward the company’s net operating profits totaling $1. 18 billion, according to the company’s 2005 annual report.
Lucent’s asset mix was 62% equities, 25% fixed income, 6% in real estate and 7% in private equity, according to its annual report. Returns in fiscal year 2005, which ended Sept. 30, were 10. 6%, or 2. 1 percentage points above the target return of 8. 5%, according to the annual report. According to the 2006 Money Management Directory of Plan Sponsors and Tax-Exempt Funds, managers handling Lucent assets include JPMorgan Asset Management, AEW Capital Management, Dimensional Fund Advisors Inc. , Barclays Global Investors, BlackRock, Pacific Investment Management Co. Putnam Investments, State Street Global Advisors, and Lord, Abbett & Co. LLC. Paris-based Alcatel had e2. 28 billion ($2. 76 billion) in assets as of Dec. 31, 2005, with a e1. 2 billion deficit, according to the company’s annual report. Plans are managed independently across about 15 countries, each setting its own investment strategies and choosing its own asset managers. Problem solving Alcatel-Lucent’s board has tapped two Europeans for the top posts at the Franco-American telecom-equipment company, moving to restore management unity and shore up the company’s finances.
Ben Verwaayen, a Dutchman and former boss of BT Group PLC, and Frenchman Philippe Camus, a former aerospace executive, were named Alcatel-Lucent’s chief executive and non-executive chairman, respectively. The selection of two Europeans suggests Alcatel-Lucent’s board is determined to put an end to the trans-Atlantic tensions that have hurt the company since its creation two years ago from the merger of Alcatel SA of France and Lucent Technologies Inc. of the U. S. After the deal, billed as a merger of equals, the company tried to balance its U. S. nd French interests by dividing up its top positions by nationality. But management infighting between the outgoing chairman, Serge Tchuruk, a Frenchman, and CEO Patricia Russo, an American, made it harder for Alcatel-Lucent to navigate in an increasingly tough market. Now, the board is likely to charge Messrs. Verwaayen and Camus with the task of healing cultural differences and effectively rooting the company more firmly in France, where it is based. The 2006 merger was designed to give Alcatel-Lucent, which makes telephone and Internet equipment for telecom operators such as AT&T Inc. nd Sprint Nextel Corp. , the scale and pricing power to compete against low-cost Asian rivals. Deal Journal • Taking the U. S. Out of Alcatel-Lucent But Alcatel and Lucent proved harder than expected to integrate, and the combined company’s core equipment business wilted. Alcatel-Lucent has lost nearly two-thirds of its market value since the merger and has posted six consecutive quarterly losses. Faced with business and management problems, the board decided in late July that Mr. Tchuruk and Ms. Russo should both leave. Mr. Tchuruk is scheduled to step down on Oct. 1.
The company has said Ms. Russo will exit once a successor is found. Both executives have portrayed their departures as voluntary. Messrs Verwaayen and Camus bring experience to Alcatel-Lucent that could serve the struggling company well. Mr. Verwaayen, a veteran telecom executive, was one of the first people approached by Alcatel-Lucent’s board when it started its search in July, but he originally rebuffed the overture, according to people familiar with the matter. Mr. Verwaayen is credited with reviving BT’s fortunes during his six years at the helm of the British telecom company.
Prior to that job, he held various positions at Lucent. As a former co-CEO of European Aeronautic Defence & Space Co. , the parent of aircraft maker Airbus, Mr. Camus has much experience dealing with cultural rivalries. EADS has been plagued for years by tensions between its main German and French owners. Mr. Camus will keep his positions as managing director of Evercore Partners, a boutique U. S. investment bank, and as co-CEO of French media company Lagardere SCA, people familiar with the matter said. In his new role as Alcatel-Lucent’s non-executive chairman, Mr.
Camus will be based in New York, these people said. Mr. Verwaayen will be at the company’s headquarters in Paris, one person added. (the wall street journal) Five years ago, France’s Alcatel tried to buy US-based Lucent but the deal failed over issues of power-sharing and control. This week, the deal is back on again. That’s because the companies are no longer the equals they once were. The intervening years have been less kind to Lucent than to the French telecoms giant. And in today’s hyper-competitive telecoms equipment sector, you need all the friends you can get.
In the five years since the last deal collapsed, both companies struggled through the dot. com collapse only to find themselves facing a new world of technological change. For the last two years, sales of traditional circuit-switched equipment have been falling amid a steady move by service providers to Internet protocol (IP) networks. While both companies have been reacting to these changes, Alcatel managed to do so more deftly. The French group saw revenues fall by more than 60% from US$37bn in 2000 to US$14. 7bn in 2004, before they rose again to US$15. bn in 2005. In the meantime, the company shed 62,000 workers and now employs just 58,000. Lucent shed 75,000 employees during the same period and saw sales plummet from US$28. 9bn in 2000 to a low of US$8. 5bn in 2003. By last year, sales had recovered to US$9. 4bn and the group had slimmed down to 30,200 workers. Today, Lucent is more productive and profitable than its bigger rival, showing net income last year of US$1. 1bn, level with Alcatel’s net income of €930m (US$1. 1bn) even though its sales were almost half those of the French firm.
And according to Bloomberg, Lucent made US$38 in net income per 1,000 employees in the year to September 2005, while Alcatel earned just €5 (US$6. 06) per 1,000 employees in the same period. The difference is that Alcatel’s larger sales give it a broader reach across the telecoms sector and given the sector’s fast pace of change, this kind of reach is crucial. For example, Alcatel chucked out many of its unprofitable businesses, such as microelectronics, batteries, cables and mobile handsets. Instead, it stuck to its guns on fibre optics and mobile networks, where it is well-placed in fast-growing developing markets.
It also bought into the IP service router business by snapping up California start-up TiMetra Networks, which now ranks second only to Cisco in this high-growth sector. Lucent, for its part, has held on to a valuable portfolio of US clients such as Verizon, but has derived much of its profitability from its lucrative defence business, which will now have to be spun off to assuage US security concerns. Hedging your bets Despite its strengths, the new company, with combined revenues of US$25bn and a market value of about US$36bn, will not necessarily succeed on its new-found breadth and heft.
Mergers do not necessarily bring success in the IT business, as HP’s purchase of Compaq shows. Dell remains the unchallenged leader in the PC field on the basis of its continued ability to keep costs and prices under tight control while maintaining a first-class marketing operation. Further, the newly-merged company’s CEO will be in the US while the group’s headquarters will be in Paris, so merging the two disparate cultures will be a major challenge. Lucent in particular brings a lot of history with it – its origins go back to the original Ma Bell and it still runs the legendary Bell Labs.
To make matters more difficult, the new company has announced a goal of seeking 8,800 further job cuts across the two businesses. Alcatel is clearly carrying more fat than Lucent, but unemployment in France is over 9% and a heavy job cutting programme could make the merger highly unpopular with workers and politicians. Still, there’s little doubt that the merger makes sense, especially in the light of the significant consolidation among telecom service providers. With fewer customers to sell equipment to, equipment makers need to consolidate as well.
The future of the telecom market will consist of a few large hardware vendors and an increasing number of internet-based software and service companies offering everything from games to conferencing services to movie downloads, not to mention old-fashioned products like voice calls. And as more service providers move into IP networks, known as IP Multimedia Subsystem (IMS), it will be easier than ever to buy equipment from disparate vendors. Given this environment, a commoditisation of hardware will almost certainly take hold – as it has done in the PC sector – and squeeze margins.
As a result, being the dominant supplier provides a major advantage, as anyone at Dell will agree. The new Alcatel/Lucent, however, will need to ensure that its race for dominance doesn’t lead to neglect of the group’s respected R&D divisions. Further, it will also have to ensure that its large size and cultural differences don’t lead to a slow-down in decision-making. Given the rate of change in the telecoms sector at the moment, the new company needs to work at a fast pace if it wants to see the benefits of its new breadth and heft.