If Wall Street could cheer for one CEO to leave in the telecom equipment and communications equipment sector, it would be Patricia Russo of Alcatel-Lucent (NYSE:ALU). She had her time briefly, but frankly she has been almost 100% ineffective. 

You don’t even want to know what a former Lucent employee’s comments were a year or so ago, although this has been so bad for employee stock options there that in all fairness the comments might have been that bad about all of the top brass at Lucent.  We have never met her and she may be the nicest lady around for all we know.  But her stock since that merger has gone from a dead money stock play to a total and complete flame-out. 

As Lucent’s CEO since January 2002, Patricia Russo led the company through one of the most challenging periods in the telecom industry’s history and helped return the company to some profitability after the tech meltdown of 2000 and the following recession.  After she took over as CEO of Lucent in January 2002, Lucent shares continued their Bataan death march before recovering sharply in 2003.  But things haven’t gone well since then and shares reflected that.  Then Lucent merged with Alcatel and it hasn’t helped shareholders of the combined operations (even with the Euro gains that should have been seen from currency in Europe).  We even expect the old Alcatel heads to begin rattling their swords if they haven’t already.

Integrating Lucent and Alcatel would not have been an easy task.  And she just proved it.  The truth is that we cannot blame a consolidating customer environment and a Cisco Systems (NASDAQ:CSCO) dominated industry on her 100%, but we know with certainty that shareholders are so frustrated at this point that they would rather see Britney Spears running the show rather than Russo.  But she is an obvious leader who has fallen from grace and the company is large enough that shareholders should be demanding more. 

One thing she sort of can be considered is the token-American to keep the American regulators happy since this deal was closely reviewed because this meant so many key telecom and communications patents would be under French ownership.  Forbes had Russo on a list of most powerful women in the world ranked as #10 in August, but barring any Hail Mary touchdown pass we do not expect that she will be very high on that list (if at all) going forward.

Over the last year, Alcatel-Lucent has dipped to under $8.00.  The 52-week trading range $7.28 to $15.43.  Had this stock remained above $10.00 we would have excused her for being merely in a tough spot.  But this stock broke its $10 to $15 multi-year trading range in September and now shareholders are willing to take a blue dog over the current situation.  Shareholders would gladly accept her severance package to get new blood in the door.

24/7 Wall St. believes that a new CEO for announcement might be worth somewhere around 6% to shareholders, although part of that might be due to the low share prices.  The French are probably considering who they can transition into the role that would keep CIFIUS happy.

• The last 4,000 job cuts are expected to be of little help, and we would suggest that the French make it 4,001 layoffs.
• We recently noted the board of directors pressure, and noted how some have noted that Mike Quigley could be a potential successor.

GUIDELINES FOR OUR CEO SELECTION

Jon C. Ogg
December 6, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.

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