Alcatel acquires Lucent

(Updated) Telecom equipment makers Alcatel and Lucent Technologies Inc. will create a separate subsidiary to perform sensitive research and development work for the U.S. government and handle certain federal contracts as part of a planned purchase by the French company.

The two companies announced yesterday they signed a definite agreement for Alcatel to purchase Lucent of Murray Hills, N.J. The transaction is estimated to be worth $13.5 billion, according to media reports.

The combined company will form the subsidiary under Lucent's Bell Laboratories for certain contracts with U.S. government agencies to ensure protection of classified work and satisfy all U.S. government needs and regulations, Lucent said today in a printed statement. Bell Labs is Lucent's research and development branch.

The companies will create an independent board for the new subsidiary, whose members will be approved by the U.S. government. Lucent also said three former top U.S. national security officials would be nominated to the subsidiary's board: former Defense Secretary William Perry, who will chair the board; former CIA director R. James Woolsey; and former National Security Agency director Kenneth Minihan.

A 10 percent global workforce reduction, or about 8,800 jobs, is expected when the two companies merge, Wendy Zajack, a spokeswoman for Lucent Technologies, said in an e-mail. Alcatel has some 58,000 total employees, while Lucent has about 30,000 workers worldwide.

The deal is expected to close within six to 12 months, pending approvals from European and American regulatory authorities, governments and shareholders, Zajack said.

But how the merger will take shape with regard to blending the respective companies' U.S. federal businesses remains to be seen.

"I can't tell you the format of [the combined company's] management and board as we go forward, because that is yet to be determined," said Ed Bursk, vice president of business development at Alcatel Government Solutions of Sterling, Va., a wholly owned subsidiary of Alcatel USA Inc. Alcatel has "that structure already in place. It's not something that needs to be recreated if the companies choose to use it."

Alcatel Government Solutions and Lucent's government solutions business unit both serve some of the same public sector clients. Alcatel Government Solutions furnishes U.S government departments and agencies with mission-critical networking and communications solutions in their facilities and on the field both inside and outside the continental United States. Its main clients are the military branches, Homeland Security Department and prime systems integrators such as General Dynamics Corp., EDS Corp., Northrop Grumman Corp. and Raytheon Co.

Lucent's three main areas of focus within the U.S. government are defense transformation, agency modernization and homeland security. It provides mission-critical, converged communications for the Defense and Homeland Security departments and civilian and intelligence agencies. It also has a Government Communications Lab with a dedicated research team and facilities that produce communications solutions for the public sector.

"Just as with any of our customers, we believe that our government customers will also benefit from this merger," Zajack said about Lucent's pending purchase by Alcatel. Customers will benefit from comprehensive research and development, end-to-end integrated communications solutions, advanced wireless networks and collaboration between Lucent as a local partner with a global reach and Alcatel as a long-term strategic partner, she said.

Lucent's recent federal contract wins include a five-year, $94 million contract from the Army to implement its European Dense Wave Division Multiplex Optical Transport Network project; a $75 million contract from the Defense Department to rebuild and modernize communications systems in Iraq; and multiyear contracts worth $50 million from the Army to provide network integration and professional services for a data infrastructure upgrade at installations in North America and Asia.

Serge Tchuruk, Alcatel's chairman and chief executive officer, will become chairman of the combined company, which will be based in Paris but has yet been named. Patricia Russo, Lucent's chairman and CEO, will be the president of the new company. Jeong Kim, president of Bell Labs, will retain his position within the company. Bell Labs will remain in New Jersey.

Alcatel and Lucent came close to agreeing on a merger five years ago during the telecom and Internet, but called off their plans.

Lucent ranks No. 64 on Washington Technology's 2005 Top 100 list, which measures federal contracting revenue. Alcatel Government Solutions is not on the list.

(Originally posted April 3 at 4:55 p.m. and updated April 5 at 3:48 p.m.)

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