Alcatel-Lucent seeks to raise $2.7B to fund turnaround efforts

Tools

Alcatel-Lucent (NYSE:ALU) said it is seeking to raise around $2.7 billion in fresh capital via a combination of new shares and debt, as the equipment vendor takes advantage of a rising stock price and optimism that it will be able to reverse its business situation.

The company said it plans to raise $1.29 billion by selling new shares and issuing new bonds worth $750 million. Alcatel-Lucent said it has also secured a commitment for a new $675 million loan. Alcatel-Lucent will price the new shares at €2.10 ($2.83),  which is 29 percent below Friday's closing price, according to the Wall Street Journal. That news sent the company's shares down, but the company's stock has almost tripled since CEO Michel Combes took over in April, noted Bloomberg.

"The measures we are announcing today are part of the plan to reinforce the group's balance sheet and restore competitiveness," Combes said in a statement. "Once these operations are complete, Alcatel-Lucent will be able to fully concentrate on implementing its transformation and sell assets."

Last week Alcatel-Lucent reported a narrower loss for the third quarter amid rising revenue. The results indicate that the vendor's massive new cost-cutting plan is starting to take hold as it tries to nurse itself back to health as a smaller company. The vendor posted a net loss of $273 million in the quarter, narrower than the $431 million loss it had in the year-ago period. Net sales increased 1.9 percent to $5 billion and would have increased 7 percent year-over-year at constant currency exchange rates, the company said.

Earlier this month the company confirmed it would cut 15 percent of its workforce, or 10,000 jobs, as part of its "Shift" reorganization plan aimed at slimming down the company as it seeks to become more of a specialist focused on IP networking, LTE and small cells.

"This is clearly an opportunistic decision," James Crawshaw, analyst at S&P Capital IQ, told the Journal in regard to Alcatel-Lucent's financing moves. "It's the honeymoon period for the new CEO so he's taking this opportunity."

The vendor is clearly focused on its LTE business. In the third-quarter, the company said LTE revenues more than doubled year-over-year, and that its LTE overlay strategy is gathering momentum. Indeed, the vendor's momentum was highlighted recently by its win at Telefónica (Alcatel-Lucent won the largest share of the operator's LTE network in Spain) and China Mobile (Alcatel-Lucent was selected as a vendor in the operator's Phase I TD-LTE network and CNT in Ecuador). Further, Sprint (NYSE:S) yesterday revealed that it that it will use equipment from Alcatel-Lucent, Samsung and Nokia (NYSE:NOK) Solutions and Networks for Sprint Spark, its plan to add 2.5 GHz TD-LTE services to its current network.

In a recent interview with FierceWireless, Glenn Booth, vice president and general manager of the Alcatel-Lucent's LTE business, said that more and more carriers now want to use LTE for a specific business purpose, rather than simply just be the first to launch LTE in a market to get a strong lead, which some customers still want. Some operators want to control pricing, introduce new devices or be disruptive. "A couple of years ago, us being strong with LTE was only helping us with customers who wanted to go strong" with LTE and be market leaders. Now, Booth said, there is more variety and hunger for LTE.  

Booth said over the last several months Alcatel-Lucent has won 15 LTE deals that are not yet announced, outside of the U.S. market. Almost all of them are for LTE overlay networks, he said, and half are with Tier 1 operators.

Booth said the company's declining GSM and CDMA sales would not hurt it as much as that trend might hit other competitors since Alcatel-Lucent was never traditionally strong in those technologies outside of the U.S. and China. "We don't have as many of legacy commitments and constraints in some ways as our competitors," he said.

For more:
- see this release
- see this WSJ article (sub. req.)
- see this Bloomberg article
- see this Reuters article

Related Articles:
Alcatel-Lucent posts smaller Q3 loss as cost cuts take hold
Sprint testing Samsung, Alcatel-Lucent indoor small cells
Alcatel-Lucent's Combes: 'This company could disappear'
France may try to block Alcatel-Lucent job cuts
Alcatel-Lucent to axe another 10,000 jobs in reorganization plan
Alcatel-Lucent's Shift strategy targets a virtualized future