Alcatel, Lucent to merge

April 3, 2006 Paris, France and Murray Hill, NJ -- Alcatel and Lucent Technologies have entered into a definitive merger agreement. Approved by both companies' boards of directors, the transaction is expected to build upon the complementary strengths of each company to create a global provider of products and services for wireless, wireline, and converged networks.

April 3, 2006 Paris, France and Murray Hill, NJ -- Alcatel and Lucent Technologies have entered into a definitive merger agreement. Approved by both companies' boards of directors, the transaction is expected to build upon the complementary strengths of each company to create a global provider of products and services for wireless, wireline, and converged networks.

According to the companies, the primary driver of the merger is to generate "significant growth in revenues and earnings based on the market opportunities for next-generation networks, services, and applications, while yielding significant synergies." The companies say the combined entities' increased scale, scope, and global capabilities will enhance its long-term value for shareowners, customers, and employees.

"This combination is about a strategic fit between two experienced and well-respected global communications leaders who together will become the global leader in convergence. A combined Alcatel and Lucent will be global in scale, have clear leadership in the areas that will define next-generation networks, boast one of the largest research and development capabilities focused on communications, and employ the largest and most experienced global services team in the industry," comments Serge Tchuruk, chairman and CEO of Alcatel and non-executive chairman of the combined company, pending completion of the merger.

"The strategic logic driving this transaction is compelling," adds Patricia Russo, chairman and CEO of Lucent and proposed CEO of the combined company. "The communications industry is at the beginning of a significant transformation of network technologies, applications, and services - one that is projected to enable converged services across service-provider networks, enterprise networks, and an array of personal devices. This presents extraordinary opportunities for our combined company to accelerate its growth."

According to a press release, the combined company, which will be named at a later date, will have an aggregate market capitalization of approximately Euro 30 billion (USD 36 billion), based upon the closing prices on Friday, March 31. Based on calendar 2005 sales, the combined company will have revenues of approximately Euro 21 billion (USD 25 billion), divided almost evenly among North America, Europe and the rest of the world. As of December 31, 2005, the combined companies had about 88,000 employees.

Under the terms of the agreement, Lucent shareowners will receive 0.1952 of an ADS (American Depositary Share) representing ordinary shares of Alcatel (as the combined company) for every common share of Lucent that they currently hold. Upon completion of the merger, Alcatel shareholders will own approximately 60% of the combined company and Lucent shareholders will own approximately 40% of the combined company. The combined company's ordinary shares will continue to be traded on the Euronext Paris and the ADSs representing ordinary shares will continue to be traded on the New York Stock Exchange.

The board of directors of the combined company will be composed of 14 members and will have equal representation from each company, including Tchuruk and Russo, five of Alcatel's current directors, and five of Lucent's current directors. The board will also include two new independent European directors to be mutually agreed upon. The combined company will be incorporated in France, with executive offices located in Paris. North American operations will be based in New Jersey, where Lucent's Bell Labs will remain headquartered; Bell Labs' president Jeong Kim will continue in his present role.

According to Alcatel and Lucent, the combined entity will benefit from: a strong financial base, achieving annual pre-tax cost synergies of about Euro 1.4 billion (USD 1.7 billion) within three years, a substantial majority of which is expected to be achieved in the first two years; one of the largest, most experienced global services and support organizations in the communications industry and one of the broadest portfolios of wireless and wireline product platforms; long-term relationships with major global service providers; growing momentum in high-end enterprise technologies and markets, including mission-critical safety and security applications; "premier" R&D capabilities, including Lucent's Bell Labs; and an experienced international management team and and diversified customer base with a global presence in more than 130 countries.

According to the companies, the cost synergies of the merger are expected to be achieved within three years of closing and will come from several areas, including consolidating support functions, optimizing the supply chain and procurement structure, leveraging R&D and services across a larger base, and reducing the combined worldwide workforce by approximately 10%. The merger also will result in approximately Euro 1.4 billion (USD 1.7 billion) in new cash restructuring charges, with the charges to be recorded primarily in the first year. A substantial majority of the restructuring is expected to be completed within 24 months after closing. The transaction is expected to be accretive to earnings per share in the first year post closing with synergies, excluding restructuring charges and amortization of intangible assets.

The companies say the combined entity will be managed by a team that reflects a balance between the two organizations, taking into account the best talents of each company and the multicultural nature of its workforce. Beginning immediately after closing, a management committee will work toward this end, while ensuring continuity in the management of the two companies. This committee of the combined company will be headed by Patricia Russo, CEO, will also consist of Mike Quigley, COO; Frank D'Amelio, senior EVP, who will oversee the integration and the operations; Jean-Pascal Beaufret, CFO; Etienne Fouques, EVP, who will supervise the emerging countries strategy; and Claire Pedini, senior VP, Human Resources. Additional organization and management team announcements will be made at a future date.

Between signing and closing, Serge Tchuruk and Patricia Russo will supervise an integration team to be nominated shortly, which will seek to ensure that synergies will start to be realized as soon as closing takes place.

Also in the merger, Lucent announced that it will form a separate, independent U.S. subsidiary, under Bell Labs, holding certain, classified contracts with U.S. government agencies. This subsidiary is to be separately managed by a board to be composed of three independent U.S. citizens acceptable to the U.S. government. The three independent citizens and former members of the U.S. national security community asked to serve on the independent subsidiary's board, subject to U.S. government approval, include proposed board chair William Perry, Secretary of Defense from 1994 to 1997; retired Lieutenant General Kenneth A. Minihan, director of the National Security Agency from 1996 to 1999; and R. James Woolsey, director of the Central Intelligence Agency from 1993 to 1995.

Also, the combined company will remain the industrial partner of Thales and a key shareholder alongside the French state. Directors to the Thales board who are nominated by the combined company would be European Union citizens. Serge Tchuruk, or a French director or a French corporate executive of the combined company would be the principal liaison with Thales. Furthermore, the board of Alcatel has approved the continuation of negotiations with Thales with a view to reinforce the partnership through the contribution of certain assets and an increased shareholding position in Thales.

The merger is subject to customary regulatory and governmental reviews in the United States, Europe, and elsewhere, as well as the approval by shareholders of both companies and other customary conditions. The transaction is expected to be completed in six to twelve months. Until the merger is completed, both companies will continue to operate their businesses independently.

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