CASE STUDY
The Alcatel-Lucent Merger—What Went Wrong?
It did not take long after the merger for things to startgoing wrong for Alcatel-Lucent CEO Patricia Russo, who opted toleave the vendor last month after admitting she could no longerwork with fellow board resignee chairman Serge Tchuruk.
It seems that this deal was not meant to happen. The originalmerger negotiation between Alcatel of France, the communicationsequipment maker based in Paris, and Lucent Technologies, the U.Stelecommunication giant, tool place in 2001. However, the finaldetailed deal collapsed on May 29, 2001, after the two companiescould not agree on how much control the French company would have,Lucent’s executive apparently wanted the deal as a ‘‘merger ofequals’’ rather than a takeover by Alcatel.
The failed deal was regarded as a severe blow to Lucent’simage Industry watchers questioned how Lucent would be able tosurvive this most recent blow. Although it was not clear whichcompany initiated the negotiations, it was reported that Lucentended them after much of the senior management detected that theproposed deal would not be a merger of equals.
In 2006, however, renewed negotiations took place, resultingin the transatlantic relationship being consummated; shareholdersin France approved the merger of telecommunication equipmentmakers. Alcatel and Lucent on September 7, 2006. However, Alcatelinvestor still has concern about the leadership and financialhealth of their new American partner. Alcatel’s chief executive.Serge Tchuruk, tried to reassure the 1,500 shareholders gathered inParis to back the merger, saying the company- to be calledAlcatel-Lucent- is ‘‘truly global and has no equivalent today andwon’t in the future. Mr. Tchuruk had agreed in April 2006 to pay10.6 billion euro ($13.5 billion then) for Lucent, in a deal tocreate the world’s biggest telephone equipment maker althoughindustry watchers considered the bid as financially inadequate forAlcatel investors. The stock swap was valued at one AlcatelAmerican depository share for every five Lucent shares. Tchuruksaid the combined company would realize 1.4 billion euro ($1.8billion) in cost savings over the following three years, in part bycutting 9,000 jobs, about 10 percent of the combined workforce. Henoted that Alcatel-Lucent’s revenue would be spread almost equallyacross Europe, the United States and Asia, offering greater longterm stability. Alcatel does most of its business is also endorsedthe deal. ‘We are another step closer to creating the first trulyglobal communications solution provider with the broadest wireless,wireline and services portfolio in the industry” said the chiefexecutive of Lucent, Patricia F Russo, who was to retain that rolein the combined company. At that time, the company had combinedsales of $25 billion. Amid concerns, about the potential forcross-cultural conflicts, Tchuruk said that, while cultural
issues could arise, ‘‘everything is under way to make surethis human factor is dealt with,’’ he said, adding that Alcatelalready opened as an international company with a wide mix ofnationalities; English is the official language of the company.After the shareholders of both
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companies endorsed the deal, regulatory hurdles was cleared inboth the EU and the U.S. An Alcatel-Lucent merger provided thecombined company a strong position in several categories ofequipment sold to the major telecommunications carrier: wirelesstelecommunications equipment, wireline equipment, wirelessinfrastructure, Internet routers, equipment for carrying calls overthe Internet, etc.
However, success was illusive. Overall, it seemed that ‘thedifficulties of integrating a French company with an American onedominated during Russo’s tenure, as the corporate culture of Lucentclashed with alcatel’s French business model. One source close tothe company saw little evidence of cooperation between the twofactions from the outside. In July 2008, the Alcatel- Lucent CEOPatricia Russo resigned, citing the inability to get along withSerge Tchuruk, her fellow board member, subsequently he tooresigned. Much of the resentment came from Alcatel managementbecause the overall leadership had been handed to the targetcompany. Lucent, an unusual decision; in addition, it became clearthat it was a poor decision to appoint leaders based, as shestruggled to bring together the different cultures of the twocompanies. As the first woman to run a company listed on the CAC40, she had to make her way in the clubby, male-dominated worldwhere French business and politics overlap. In addition, thecombined, but still rather weak companies, faced low-costcompetition from now Chinese rivals and Internet technology waschanging beyond recognition. Worse, demand has been weakeningacross the industry.
A Barron’s article in August 2008 noted that ‘‘while it mighthave been helpful if outgoing CEO Patricia Russo had spoken French,that’s not why she and Chairman Serge Tchuruk failed to make a goof the 2006 merger of Alcatel and Lucent Technologies. They werepushed into each other’s arms out of desperation as the industrybegan a painful, necessary consolidation.... thetelephone-equipment business is brutal and likely to see moreattrition. The marriage didn’t avert six straight quarterlylosses.’’ The series of quarterly losses ($7 billion loss since themerger) led to a bombardment of negative comment an Alcatel-Lucentinitiated restructuring and cut around 16,500 job. In September thenew chief’s were announced- a French chairman, who lives inAmerica, and a Dutch chief executive, who will be based in Paris.Both Philippe Camus and Ben Verwaayen were considered to have thepersonality and experience that cold iron out the beleagueredtelecoms group’s problems. Mr. Verwaayen accepted the new job onlywhen he found he could get along with Mr. Camus, who had alreadyagreed to be chairman. ‘‘We share
the same sense of humour.’’ he says. ‘‘You need to havecomplete understanding at the top of the house.’’ ‘‘We must deliveron the merger.’’ Ben Verwaayen the former head of BT. who wasappointed to succeed Patricia F, Russo as chief executive, said ata meeting with journalists. Acknowledging that there remained ‘‘adivided Alcatel-Lucent.’’ Mr. Verwaayen speaks fluent French andEnglish. Alcatel-Lucent operates in 130 countries, and like manyglobal enterprises, its language of business is English. He wasquoted in The Economist as saying that he ‘‘sees his job asremoving barriers wihtin the company and unleashing its talents.’’But perhaps his biggest advantage in rescuing a failedFranco-American merger is that he is neither French norAmerican.
QUESTIONS:
1. What conditions and negotiations pushed forth the merger in2006 that were not present in 2001?
2. Evaluate the comment that the merger is “a gianttransatlantic experiment in multicultural diversity.” What evidenceis there that the company has run into cross-cultural problemssince the merger took place in 2006?
3. What are some of the international challenges thatAlcatel-Lucent faces as it moves forward as a
itsa case study and there is three questions to be answered. pls helpme
