Alcatel-Lucent granted lifeline with €1.6B loan from banks

Alcatel-Lucent secured €1.6 billion in loan financing that it hopes will provide it with enough time to cut costs and get its balance sheet under control.

The deal, underwritten by investment banks Credit Suisse and Goldman Sachs, will allow Alcatel-Lucent to "aggressively" consider all options to boost profitability, improve its strategy and shore up the company's finances, CEO Ben Verwaayen said in a statement.

The financing will be secured by assets including Alcatel-Lucent's portfolio of around 29,00 patents, in part inherited from the research conducted at Bell Labs and valued at €5 billion, the company said on its website.

While Verwaayen has sold assets, cut jobs and signed patent-licensing agreements, these actions have failed to reduce an average annual cash consumption of €700 million since the 2006 merger of Alcatel and Lucent Technologies, according to Bloomberg.

The company has yet to detail what other assets are likely to be sold, but Bloomberg reported that that Alcatel-Lucent is weighing the sale of assets that could fetch €1 billion to €1.5 billion, with its submarine cables and enterprise business units already being rumoured to be for sale.

The company also used the occasion to provide new guidance for 2015 gross margin in the range of 35-37 per cent and an adjusted operating margin of 6-9 per cent.

However, Bernstein Research analyst Pierre Ferragu, told Reuters: "We don't believe the 2015 target presented by management is credible. It implies a significant recovery in gross margins in optics and a stabilisation of negative trends at most other business units."

Analysts at JP Morgan also took a negative view of the announcement. "These new credit facilities in our view improve the liquidity of the company but do not solve the underlying problems of weak profitability, poor underlying free cash flow and an overall company debt level that looks too high for a cyclical technology company," they wrote in a research note, according to Reuters.

Regardless, Alcatel-Lucent's shared climbed 10 per cent in Paris as some investors welcomed the extra financial breathing space, albeit the shares have fallen by 83 per cent over five years, according to the Financial Times.

For more:
- see this Alcatel-Lucent release
- see this Bloomberg article
- see this Reuters article
- see this FT article (sub. req.)

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