Thursday, February 21, 2013

France Said to Consider Alcatel Stake After Patent Deal

The French government is weighing options including an investment in Alcatel-Lucent SA (ALU) as it looks to protect the unprofitable network equipment maker’s patents, people with knowledge of the deliberations said.

Taking a minority stake in Alcatel-Lucent, potentially through the Fonds Strategique d’Investissement state vehicle, is among alternatives being considered by the French administration, said a government official, who asked not to be identified as he wasn’t authorized to be cited by the media. Such a move would give France more influence at the company after a 2 billion-euro ($2.6 billion) financing deal criticized by officials, other people familiar with the matter said.

Other plans that have been considered by officials include encouraging a merger between Paris-based Alcatel-Lucent and rival Nokia Siemens Networks, or an investment in Alcatel- Lucent’s undersea cable business, said the people.

The government isn’t likely to decide which option to pursue before a successor is found for Chief Executive Officer Ben Verwaayen and the state may ultimately decide not to take a stake in the company or intervene, the people said. Verwaayen said this month that he would resign once a successor is found after a three-year turnaround plan failed to return the company to profit.

A government investment in Alcatel-Lucent would be a new chapter in the history of a onetime French industrial giant, with former operations ranging from spaceflight to cutting-edge theoretical physics, that’s been weakened by Asian competition and slower spending on network equipment by mobile carriers.

Alcatel-Lucent, created with the 2006 merger of Alcatel SA with U.S.-based Lucent Technologies, was removed from France’s benchmark stock-market index in 2012 as its value slipped to less than 2 billion euros, a decline of 70 percent since 2008. Since the deal, the combined firm has accumulated about 10 billion euros in losses, while its cash reserves have dwindled by an average of 700 million euros a year.

Last month, the French government unsuccessfully sought alternative solutions for Alcatel-Lucent’s financing needs, according to union representatives. President Francois Hollande’s socialist government has regularly opposed attempts by struggling companies to shut facilities or restructure assets, fighting job cuts at Peugeot SA (UG) and ArcelorMittal.

In late January, Alcatel-Lucent said it had expanded its initial financing agreement by 400 million euros, achieved an average price decrease of 90 basis points, and removed financial covenants, making a default the primary trigger for giving up its collateral. In a statement, French ministers welcomed the better terms and took partial credit for the adjustment after the government “mobilized itself and examined, in cooperation with the company, all the feasible options.”

Nonetheless, the changes to the terms were due largely to better market conditions following the avoidance of the so- called fiscal cliff in the U.S., according to people familiar with the transaction. The initial conditions, on which discussions with Alcatel-Lucent Chief Financial Officer Paul Tufano began in October, were reflective of the more risk-averse market environment of the time, the people added.

Alcatel-Lucent’s patent portfolio, partially inherited from New Jersey’s storied Bell Labs research center, touches on video-conferencing as well as data compression and transfer.

That intellectual property makes up a significant proportion of Alcatel-Lucent’s available assets, and was thus the logical collateral for a company unable to raise funds through a share sale and facing high costs for unsecured lending, the people said.

Patents with applications for mobile technology have gained in value as companies including Apple Inc. and Samsung Electronics Co. repeatedly take each other to court over alleged infringements. Google Inc. cited the value of Motorola Mobility’s patent portfolio as a primary justification for its $12.5 billion acquisition of the smartphone maker in 2011.

Nonetheless, the changes to the terms were due largely to better market conditions following the avoidance of the so- called fiscal cliff in the U.S., according to people familiar with the transaction. The initial conditions, on which discussions with Alcatel-Lucent Chief Financial Officer Paul Tufano began in October, were reflective of the more risk-averse market environment of the time, the people added.

Alcatel-Lucent’s patent portfolio, partially inherited from New Jersey’s storied Bell Labs research center, touches on video-conferencing as well as data compression and transfer.

That intellectual property makes up a significant proportion of Alcatel-Lucent’s available assets, and was thus the logical collateral for a company unable to raise funds through a share sale and facing high costs for unsecured lending, the people said.

Patents with applications for mobile technology have gained in value as companies including Apple Inc. and Samsung Electronics Co. repeatedly take each other to court over alleged infringements. Google Inc. cited the value of Motorola Mobility’s patent portfolio as a primary justification for its $12.5 billion acquisition of the smartphone maker in 2011.

No comments:

Post a Comment