Alcatel and Lucent Technologies confirmed yesterday that they have entered into a definitive merger agreement to create company with a turnover of $25bn (£14bn).
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The pair expect to complete the merger over the next six months, once regulatory and governmental obstacles had been overcome. Job losses are also expected.
Jean-Charles Doineau, an analyst at Ovum, said, “This new company will benefit from having more financial capabilities to support the important research and development long-term bets that a network equipment provider has to undertake.”
He said, “The agenda of the new company is pretty clear, and will certainly be focused on delivering operational efficiency gains at the very beginning.”
Doineau said the combined company expected to make $1.7bn of operational savings after three years, with 30% of this total being saved in the first year. He said a large chunk of the savings would come from staff layoffs, which could affect 10% of the workforce.
The two suitors also have to overcome political obstacles before getting together.
A reported stumbling block to the deal is said to be Alcatel’s space and satellite interests and Lucent’s highly confidential work for the US government.
The US government is now making sure that confidential government technology projects being worked on by Lucent remain ring-fenced from any new French/US commercial operation.
Likewise, Alcatel is looking to separate its space and satellite businesses by selling off these businesses to fellow French company Thales, in return for a higher stake in this company.
Alcatel currently owns less than 10% of Thales, but contributing its space and satellite business would take this stake up to 30%.
Thales is a leading player in space and military contracts, and the French government is backing Alcatel’s plans, to make sure Alcatel’s space and satellite intellectual property stays under the control of a French company.