Alcatel and Lucent relate merger progress, Lucent revenue regress

July 11, 2006 Paris, France, and Murray Hill, NJ -- Spokesmen at Alcatel and Lucent Technologies yesterday said they expect the two companies will complete their merger by the end of this year. The positive spin from the achievement of what the sources called "a number of significant milestones" slowed when Lucent announced separately that it expects revenues for the third quarter of fiscal 2006, which ended June 30, 2006, to be approximately $2.04 billion. The figure is smaller than both the previous quarter and third quarter 2005.

On the plus side, Alcatel and Lucent announced that they have defined the business model and the associated organization of the combined company, which will be implemented immediately upon closing. A combined press release also asserted that that previously announced cost synergies should be realized.

"The pre-integration work has progressed very satisfactorily and clearly confirms the high value that will be derived from this merger for our customers and our shareholders," said Serge Tchuruk in the release. Tchuruk will become non-executive chairman of the combined company.

According to the release, the combined company will address carrier, enterprise, and service markets, focusing on "end-to-end solutions maximizing the value to customers." The company's activities will be divided into business groups tasked with meeting the worldwide requirements of those three markets, with a decentralized regional organization providing local support to customers.

The Carrier Business Groups, headed by Etienne Fouques will consist of Wireless, headed by Mary Chan; Wireline, headed by Michel Rahier; and Convergence, headed by Marc Rouanne. The Enterprise Business Group will be headed by Hubert de Pesquidoux, while John Meyer will lead the Service Business Group.

There will be four regional organizations:

• Europe and North, headed by Vince Molinaro. This region will include the UK, Scandinavia, Benelux, Germany, Russia and Eastern Europe.
  
• Europe and South, headed by Olivier Picard, which will include France, Italy, Spain, "other Southern European countries," Africa, the Middle East, India, and Latin America.
  
• North America, headed by Cindy Christy, will encompass the U.S., Canada, and the Caribbean.
  
• Asia-Pacific, headed by Frederic Rose, will comprise China, Northeast Asia, South East Asia and Australia.
  

The company will have a management committee headed by Pat Russo as CEO. Committee members will include Etienne Fouques, senior executive vice president of the Carrier Group; Frank D'Amelio, senior executive vice president integration and chief administrative officer; Jean-Pascal Beaufret, CFO; Claire Pedini, senior vice president, human resources and communication; and Mike Quigley. While Quigley originally had been tabbed as the new company's COO, he now will become president, science technology and strategy. Quigley will be expected to assure that strategic investments align with evolving market opportunities; the press release ascribed the change in position as the result of "personal reasons."

Meanwhile, the two companies said they were notified June 7 that they had received early termination under the Hart-Scott-Rodino US Antitrust Improvements Act of 1976 (HSR) as it pertains to the merger. The companies also announced that they had filed for European antitrust approval on June 16.

The two companies also plan to submit a voluntary notice of the merger to the Committee on Foreign Investment in the United States (CFIUS). The merger remains subject to additional customary regulatory reviews and approvals as well as approval by shareholders of both Alcatel and Lucent at shareholder meetings scheduled for September 7, and other customary conditions.

Lucent tempered this good news with its pre-announcement of earnings. On a preliminary basis, the company expects to report earnings of approximately 2 cents per diluted share for the third quarter. These results compare with earnings of 4 cents per share in the second quarter of fiscal 2006 and earnings of 7 cents per diluted share in the year-ago quarter.

"During the third quarter, our North American mobility business was adversely impacted by a slowdown in spending on some of our current-generation wireless solutions," said Lucent Technologies Chairman and CEO Patricia Russo. "However, we are beginning to see some of our customers move toward the next phase of mobile high-speed data....

"Overall, our year-to-date results also have been affected to some extent by delays in spending that we believe are attributable to the consolidation efforts of certain customers," added Russo. "That said, we believe consolidation will lead to opportunities as service providers look to us to help them integrate their large, complex networks."

"We expect investment in both CDMA and UMTS to increase going forward, driven by the introduction of EV-DO RevA and HSDPA solutions," said Lucent Technologies COO Frank D'Amelio. "As a result, assuming that our EV-DO RevA and HSDPA rollouts remain on track, we expect that mobility deployments in North America will enable us to make the fourth quarter our highest quarterly revenue period for fiscal year 2006 by a significant margin."