The Alcatel Lucent Merger

Topics: Alcatel-Lucent, Patricia Russo, Lucent Technologies Pages: 6 (1508 words) Published: March 26, 2013

The Alcatel-Lucent Merger-What went wrong?

American Public University




The Alcatel-Lucent Merger-What went wrong?

Referring to the case and this chapter, discuss what conditions and negotiation factors pushed forth the merger in 2006 that were not present in 2001.

In 1999, as the Internet boom was approaching its apex, Lucent Technologies was the world’s largest telecommunications equipment company (Lazonick & March, 2011). With revenues of $38.3 billion, net income of $4.8 billion, and 153,000 employees for the fiscal year ending September 30, 1999, Lucent was larger and more profitable than Nortel, Alcatel, and Ericsson, its three major global competitors (Lazonick & March, 2011). Unfortunately for Lucent, as quickly as it rose to the top, it began to fall to the bottom. Lucent recognized, and so did its competitors, that something had to be done to sustain profitability in its market. In 2001, Alcatel of France, the communications equipment maker in Paris, and Lucent Technologies, the U.S. telecommunications giant, began negotiations for a merger of the two companies (Deresky, 2011, p. 176). In 2001, many communications companies began to see a fall in sales due to an internet crash. Companies like Lucent that were just years prior at the top of its game in the market were now quickly loosing sales and on the brink of bankruptcy (Lazonick & March, 2011). Creating a merger was a choice that Lucent had to again gain power and profitability, but mergers rarely go easily. As in this case there are two competitors attempting to come together and negotiate for a mutually acceptable agreement that affects the future of both companies and the employees.



By the mid-2000s it became evident that Lucent was faced with the choice of becoming merely a "niche" player in the communications technology industry or finding a partner to supplement its resources so that it could compete once again as a "full line" supplier. In May 2001, Alcatel and Lucent held initial merger talks with a view to creating a $50 billion global firm. A year earlier Lucent would have dominated such a combination. By May 2001, however, Lucent had already been severely damaged by the downturn in the telecommunications industry. In contrast, Alcatel sales and profits remained strong at the time of those merger talks. If the merger had gone through, Alcatel shareholders would have owned 58 percent of the combined company. It had been agreed that the new headquarters would be in Murray Hill, New Jersey and that Alcatel Chairman Serge Tchuruk would run the company. In the end, the 2001 merger failed when Alcatel insisted that because of its stronger position it would select 8 of the 14 board members, while Lucent Chairman Henry Schacht insisted that his company send two more members for an even split (Sorkin and Romero 2001).

The 2001 merger was not successful because negotiations were not successful. For longterm positive relations, the goal should be to set up a win-win situation-that is to bring about a settlement beneficial to all parties concerned (Deresky, 2011, p. 152). Unfortunately, that was not the case with this merger. The two companies could not agree on how much control the French company would have. Lucent’s executives apparently wanted the deal as a “merger of equals,” rather than a takeover by Aslcatel (Deresky, 2011, p. 176). Furthermore, according to Deresky (2011), the negotiation process should encompass fives stages: preparation, relationship building, exchange of task-related information, persuasion, and concessions and agreement (p. 153). The entire negotiation process in 2001 had flaws.



Research the status of the merged company at the time of your reading this case. What has happened in the industry since the merger, and how is the company faring?

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