Alcatel-Lucent (ALU), which may go down in the annuls of business as one of the most poorly conceived mergers in modern business history, announced another large quarterly loss and said it would fire another 4,000 people.
According to The Wall Street Journal "the disclosure of further cuts came as the group reported a third-quarter net loss of €345 million, compared with a pro forma €532 million net profit a year earlier." The merged company is also running into a slowdown in its core telecommunications equipment business as large telcos cut or delay spending.
The merger was a classic screw-up almost from the start. That is because its success was based on a number of factors that even a first year business school student should know were not likely to work.
The first is that a successful business is built on cost cuts. From the beginning, much of the talk from CEO Pat Russo and her management team was about the hundreds of millions of dollars that combining two similar companies would save. The management team emded up focusing its attention on integration and savings and marketing and product development appear to have fallen into chaos.
The next assumption that the company made was that the merger would take one competitor out of the market and that prices could move up for the entire industry. Lucent and Alcatel did fight for the same customers and the merger may have cut the number of companies vying for the same pieces of business. But, the new company did not look ahead and see that demand for its products was falling off.
The final issue that the companies missed is that combining two mediocre companies does not make a good one. Both Lucent and Alcatel were very modest performers. If either had been strong enough, the merger would not have been necessary. New companies have moved into the telecom supply business especially from China. And weak companies like Nortel (NT) must cut prices to pick up new business.
The merger does not work now, but it was never going to.
Douglas A. McIntyre
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