Alcatel-Lucent mulls asset sales as cash burn rate climbs in Q3

Alcatel-Lucent reported weaker sales and a wider net loss in the third quarter, as executives said the company was considering asset sales to bolster its balance sheet.

CEO Ben Verwaayen


Early indications are that the company is looking to sell it submarine cable business and its enterprise telephony unit, unnamed sources familiar with the matter told Reuters. The two units were placed under the direct control of CFO Paul Tufano in September. Goldman Sachs analysts estimated that sales of the submarine optic and the enterprise telephony units could raise up to €400 million.

Alcatel-Lucent said that third-quarter sales fell 2.8 per cent to €3.6 billion compared with the year-ago period. The company swung to a net loss of €146 million, significantly down from the profit of €194 million in the year-ago quarter when the company benefited from a one-time tax gain.

More worrying is that the company burned through €1.03 billion in the first nine months of the year to Sept. 30 this year, compared with €978 million last year, despite a cost reduction programme that will see headcount reduced by around 5,500. Alcatel-Lucent burned through €360 million in the third quarter, slightly higher than the €358 million it went through in the third quarter of 2011.

Responding to concerns over the rate of cash burn, CEO Ben Verwaayen said in a statement: "We are taking action to strengthen our balance sheet and we are reviewing a variety of options." Alcatel-Lucent clarified this later by saying this would include asset sales.

Tufano said that options also being considered included a "reprofiling" of the company's debt, adding: "We are looking at all the options to strengthen our balance sheet. We have assets we can dispose of that would bring in a good amount of liquidity."

Pierre Ferragu, an analyst at Sanford C. Bernstein, said that he thought disposals would include the offloading of intellectual property, according to Bloomberg.

Commenting on the progress being made on controlling expense, Verwaayen said: "We've done a good job on costs--we've promised ourselves that the cost structure of the company will be fundamentally changed and we're in the process of doing that," he told Bloomberg. "The speed of our cost cutting will also have an impact on our cash position."

Exane BNP Paribas analyst, Alexander Peterc, said in a note reported by Bloomberg: "Alcatel-Lucent is now a balance sheet story. This is a first signal to shareholders ahead of a significant dilution of equity holders. Asset disposals would, likewise, strongly diminish Alcatel's future cash generation."

Shares in Alcatel-Lucent are trading near a 23-year low and it is the most shorted stock on the French stock exchange based on data compiled by financial-information provider Markit, according to Bloomberg.

For more:
- see this release
- see this Reuters article
- see this separate Reuters article
- see this Financial Times article (sub. req.)
- see this Bloomberg article
- see this La Tribune article (translated via Google Translate)

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