September 7, 2006 12:42 PM PDT

Shareholders approve Alcatel, Lucent merger

Alcatel and Lucent Technologies shareholders approved Alcatel's $11 billion acquisition of Lucent on Thursday, ticking off another hurdle in the companies' plans to consolidate their businesses.

The deal has been billed as a merger of equals--a consolidation of two rivals who for years have competed for business among wireless and wireline telephone companies. The companies announced their merger in March.

The move comes as telecommunication service providers have also been consolidating. Last year, local phone company SBC Communications bought long distance carrier AT&T, and Verizon Communications bought MCI. Now the newly named AT&T is buying BellSouth.

Cell phone operators have also been busy acquiring each other. Cingular bought assets of AT&T Wireless, and Sprint and Nextel merged their businesses. All this consolidation has left fewer customers to buy telecommunications equipment, which has put pressure on equipment suppliers to also merge and consolidate their businesses.

At the same time, equipment manufacturers such as Alcatel and Lucent, are also facing tougher competition from low-cost Asian suppliers, especially in China.

Traditionally, Alcatel, based in France, has had strong relationships with European operators, and Lucent, based in the U.S., has had strong ties to North American carriers. The companies believe that combining their businesses will allow them to address customers across both continents and improve their operational efficiencies to compete in Asia, as well. Alcatel has identified about $1.7 billion in cost savings over three years resulting from the merger.

Lucent's CEO Patricia Russo will stay on to run the combined company, and Alcatel's chairman and CEO, Serge Tchuruk, will remain nonexecutive president of the combined company. The merger is expected to close by the end of the year.

Alcatel also recently announced it would buy some wireless assets from Nortel Networks, another telecommunications equipment competitor.

"This offensive strategy, strengthened by the projects to acquire some of Nortel's assets and the reinforcement of our partnership with Thales, aims to increase Alcatel's value for its shareholders, and to provide its customers with the broadest portfolio and to give its employees great opportunities," Tchuruk said in a statement. "We remain confident in the closing of these three strategic moves by the end of the year, when all the necessary approvals are granted."

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