Alcatel falls on warning

May 30, 2001
Web posted at: 1640 GMT

LONDON (CNN) -- Alcatel, forced to shelve its $23.5 billion takeover of Lucent Technologies, warned about profits Wednesday and the news sent its stock tumbling.

Alcatel's shares lost 5.3 percent in Paris and its U.S. shares sank about 8 percent as investors digested news that Alactel would post a loss of about 3 billion ($2.6 billion) in the second quarter.

The warning about earnings was issued after the Lucent talks collapsed Tuesday night. Lucent stock, one of the most widely held in the United States, edged up 6 cents to $8.38 at mid-session on Wall Street.

Alcatel blamed the expected losses on delayed contracts and a restructuring program, leaving the company to focus on networking, optics and space. Alactel will no longer make mobile phone handsets.

Lucent Technologies (LU: Research, Estimates) had called off what it saw as merger talks at the 11th hour after it became apparent that Alcatel would effectively buy and dominate the new combined company.

Initially, the markets cheered the failure of the talks. Alcatel shares rose more than 5 percent, with many analysts saying the French company was biting off more than it could chew.

"There would have been massive integration problems and negative revenue synergies," Per Lindberg, an analyst at Dresdner Kleinwort Wasserstein,  told CNN.

Alcatel wanted to buy Lucent to break into the lucrative U.S. market, the world's biggest for telephone switches, fiber-optics and Internet routers.

Alactel first began talks more than a month ago to buy Lucent's fiber-optics business, which analysts valued at about $5 billion, and the discussions became full-blown merger talks.

David Staples, managing director of telecoms at debt-rating agency Fitch, said Lucent would have brought with it a raft of problems, including "significant exposure" to vendor financing – the provision of financing to unstable telecom start-ups and blooming inventories. 

"I expect they will still bid for the optics business," Stuart Jeffery, an analyst at HSBC Securities, told CNN. "It (buying the whole of Lucent) was an opportunistic move to gain access to the U.S. market."

$23.5B Alcatel-Lucent merger breaks down - May 29, 2001
Alactel
Lucent

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