The Alcatel-Lucent Merger – What went wrong?

Summary

• The original merger negotiations between Alcatel of France, a communications equipment maker based in Paris and Lucent Technologies, a U.S. telecommunications giant, took place in 2001.

• The original deal collapse on May 29, 2001, after the two companies could not agree on how much control Alcatel would have. Lucent's executives wanted the deal as a "merger of equals" rather than a takeover by Alcatel.

• In 2006, renewed negotiations took place again and in April 2006, Alcatel's chief executive, Serge Tchuruk agreed to pay 10.6 billion euro ($13.5 billion then) for Lucent. This deal was to create the world's biggest telephone equipment maker.

• An Alcatel-Lucent merger provided the combined company a strong position in several categories of equipment sold to the major telecommunications carrier: wireless telecommunications equipment, wireline equipment, wireless infrastructure, Internet routers and equipment for carrying calls over the Internet, etc.

• After the merger during July 2008, corporate culture of Alcatel and Lucent clashed. The U.S. Company could not adopt Alcatel's French business model and vice versa leading to the resignation of Alcatel-Lucent CEO Patricia Russo and later Serge Tchuruk's resignation.

• Mr. Tchuruk and Ms. Russo both struggled to bring together the vastly different cultures of the two companies especially during tough business climates.

• In September 2008 the new chiefs were announced, a French Chairman who lives in the U.S. and a Dutch chief executive, who will be based in Paris. Both Phillippe Camus and Ben Verwaayen were considered to have the personalities and experience that could iron out the companies' cultural clashes and problems.

Questions

1) Discuss conditions and factors that pushed forth the 2006 merger that were not present in 2001.

According to a Barron's article in 2008, both companies were pushed into each other's arms during 2006 out of desperation as the industry began experiencing considerable losses which lead to a necessary consolidation in order to regain their competitive advantage. In 2001, the telecommunication industry was booming and doing very well. The merger of both of these companies was to provide the combined company a strong position in several categories of telecommunication carrier. However, when the deal fell through in 2001 new negotiations took place in 2006 where both companies were experiences low-cost competition from other countries such as China. The technology industry was rapidly changing, thus pushed both companies together in an effort to become a stronger company combined.

2) Research the current status of the merger – how is the company faring?

According to the company's website (http://www2.alcatel-lucent.com/news-center/) it appears that the combined merger is doing very well. Recently on September 13, 2012, Alcatel-Lucent was ranked Technology Supersector leader by Dow Jones with a score of 87/100. This is the second year in a row that the company is recognized in the Dow Jones Sustainability Index (DJSI). The Supersector Leader report highlighted: "growing environmental challenges and resource constraints, Alcatel-Lucent has continuously developed and implemented globally recognized innovations in eco-sustainable communication technologies.”

3) Evaluate – Is the merger “a giant transatlantic experiment in multicultural diversity”

I believe the merger is "a giant transatlantic experiment in multicultural diversity" because you have to vastly different cultures, Franco-American merging into one combined companies. Although the companies combined experience some cultural clashes but at the end were able to come together and become a successful company.

4) How much of the decline is leadership as opposed to industry factors?

The industry definitely had a factor in the failed merger due to low-cost competition from other countries and a rapidly changing industry, however, the leadership and cultural differences of both companies played a huge role in the failure. Both cultures clashed immediately and that became a huge problem. Also, according to the article, it was a poor decision to appoint leaders based on their nationalities rather than skills. It's important to hire leaders with experience in the industry as well as a leader who understands the vastly different cultures.

5) What, if any factors should have been negotiated differently?

In 2001 when the original negotiations took place both companies were already in disagreements about how the company should be operated. Both American and France have different business models. How the combined companies should be operated should have been negotiated earlier on which was the main issue why the two companies could not agree on a merger in 2001. Times changed later in 2006 along with the different economic factors and troubled economy played some role in the push for the merge however negotiations on how the companies combined should be operated should have been agreed upon before the merger to avoid the problems the companies faced with after the merge.