When France’s Alcatel acquired Lucent Technologies in 2006 to form Alcatel-Lucent (NYSE: ALU), the deal appeared to be a solid winner. Lucent, which had been spun off from AT&T (NYSE: T), seemed like a good fit for global telecom company.
Today, the company announced that it is “exploring strategic options to enhance the future opportunities of its Enterprise business.” Those options include “discussions with third parties,” presumably regarding a sale of the Enterprise business although Alcatel-Lucent does not specifically say that.
The Enterprise business contributes 5% of the company’s annual revenues, so it is hard to argue that it represents an integral part of Alcatel-Lucent’s business. About two years ago the company formed a 10-year global alliance with Hewlett-Packard Co. (NYSE: HPQ) that was designed to offer a variety of communications services and solutions to mid-size and large enterprises, including governments.
On one hand, that deal with HP makes the Palo Alto-based firm a leading contender to acquire Alcatel-Lucent’s Enterprise business. On the other, HP may know just how well, or how poorly, the business is doing and decide to pass on the opportunity.
If HP doesn’t make the deal, chances are that Alcatel-Lucent will have a very difficult time selling its Enterprise business. At least for an amount that it considers reasonable.
The possible IPO of rival Avaya Inc. might also figure into a potential acquisition. Avaya, now privately held by TPG Capital and Silver Lake Partners, posted a loss of around $870 million on revenues of about $5 billion in 2010. The company also has about $6 billion in debt. None of this supports a high IPO price and may be enough to sink the IPO altogether.
If Avaya fails to launch, or if it can’t get its price, then that will affect Alcatel-Lucent’s options as well. There’s no question that the networking and telecom industries are facing a shakeout. One way or another Alcatel-Lucent will probably shed its Enterprise business. Employees hope that it will be through and acquisition, not a closure.
Paul Ausick
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