Alca-Lu: No profits in sight after three years

The merger of Alcatel and Lucent has failed to generate a profit after three years of combining their technologies and personnel. What was hailed at the time as the creation of a force to challenge Ericsson, NSN and Huawei has resulted in a company weaker than the original individual businesses.

The deal, announced in April 2006, was structured as a nil premium merger with the combined company having a market capitalisation of €30 billion. Today, Alca-Lu has a market value wasof €5.6 billion with financial analysts holding little hope of a quick recovery.

"Alcatel-Lucent is doomed to remain a low profit, low-growth company, struggling with businesses that are either not very profitable or sub-scale," commented one observer, Pierre Ferragu, analyst at Bernstein.

Ben Verwaayen, Alca-Lu's CEO since 2008, believes the company can break even in its 2009 financial year. However, Verwaayen has defined break even as being ‘adjusted operating profit', which will see items such as goodwill impairment excluded from the financial report.

The merger is said to have been dogged by cultural and political differences, together with a failure to quickly rationalise its product range. The situation was not helped by the bullish characters of Serge Tchuruk, Alcatel's former chairman, and Pat Russo, Lucent's ex-CEO, conducting open warfare as each fought for supremacy.

Alca-Lu can take some inverted pleasure from NSN also running up losses since its formation in 2006 from assets owned by Nokia and Siemens.

For more on this story:
Financial Times

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