Telecom & Wireless

Alcatel-Lucent Holders Remain Patient in Annual Meeting, Dilution and Reorg Await

Tuesday marked the annual shareholder meeting for troubled telecom equipment maker Alcatel-Lucent S.A. (NYSE: ALU). What investors need to know is that the new CEO, Michel Combes, is going to continue in the path to exit or to partner up for some of its product lines that it has not been able to maximize. This is a move from being a full product one-stop shop into an advanced and next generation communications equipment provider.

The annual meeting was held on Tuesday in Paris, France. The merger of Alcatel and Lucent has been difficult to integrate. Management has been reshuffled enough to feel like a corporate game of musical chairs. The company has tried to move into a specialist role rather than being a full-service telecom equipment provider, but it has been a costly move so far.

Unfortunately, Alcatel-Lucent’s investors have had to be very patient. Its investors also have paid a serious price for that patience under what looks and feels like a perpetual strategic review of its operations.

Another unfortunate outcome is that this likely means that many of the Lucent assets are likely to be jettisoned, sold or partnered off at unfavorable fire-sale terms, compared to what was paid for them. The company has managed to burn through about half a billion euros (or about $650 million) just in the first quarter alone.

Combes also went on record to say that the current situation is just not sustainable over the long term. Combes is asking investors to remain patient for one or two more months as he plans to release the new strategy at the end of June or beginning of July. Investors should know that Combes has a reputation for cost-cutting efforts at prior employers, such as Vodafone Group PLC (NASDAQ: VOD) and France Telecom S.A. (NYSE: FTE), but this will be on top of a cost-cutting effort that was initiated under his predecessor. One last consideration here is that investors also may have to be prepared to face more dilution if the company needs more capital. That could come from a rights offering or an outright share offering, but no formal plans have been released.

It seems that Alcatel-Lucent investors are willing to remain more patient than we may have considered ahead of the annual meeting. Its shares are up 8.4% at $1.42 in New York ADR trading, and shares locally trading in Paris are also up the same 8.4% today.

Alcatel-Lucent is becoming less and less of an American story and more and more of a European and international story. The local ordinary shares trading in Paris have come close to 60 million in Paris trading on Tuesday, while New York ADR trading is currently at about 14 million shares.

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