The rate of abandonment of the CDMA is faster

14 Hours Thursday, Alcatel will bring its shareholders in the General Assembly to approve the merger with Lucent, to, in turn, held his AG three hours later in Delaware. To be validated, the operation must be approved by the half of the shareholders of the American and two thirds of those of the French. Most analysts are favourable to the operation, with the exception of Dresdner Kleinwort Benson (DK), who published a series of negative notes. Review of key issues.

Can the vote be negative

Standard & Poor's Clara van der Elst Analyst believes that there is almost a chance out of two that the operation be dismissed. DK added that with "hedge funds" could block the merger involving one-third of the capital to the Alcatel or EUR 4 billion. By selling to discovered of the Lucent shares at the same time, they could win on the two tables. But Alexander Peterc at Exane BNP Paribas, argues that a takeover of Alcatel debt by these hedge funds would inevitably cause a rapid rise of the action, which has not been ascertained. Rémi Thomas (Cheuvreux) would be "very surprised that the shareholders do not vote this merger." Bring one-third of the capital in a few weeks "seems complicated." "Among the institutional with whom I have had contacts, rare are those who want to vote against and, when we see the evolution of the margin of Alcatel, I find it difficult to believe that small shareholders will not approve it."

Industrial logic: Alcatel has need of Lucent No, says DK, which list the shortcomings of the American: "huge pension obligations, growth slowing," a "fragile" balance sheet and a less good than its French counterpart debt ratio, which "distracts Alcatel of his path to the category of investment" (from the "junk bonds"). In addition, Lucent is present disproportionately "" in mature markets, the United States and Europe representing 69 to 75 of the turnover and employees, "a cumbersome position for growth and the cost of labour". Finally, in the fixed telephone, the American is just a "reseller and systems integrator."

But other analysts contest this vision. Rémi Thomas admits that "Alcatel overpaying unquestionably Lucent", but considers the consolidation of the "necessary" sector and complementarity between the two fiancés "strong". For Alexandre Peterc, now that Nokia and Siemens merge their mobile networks, abandon Lucent would leave Alcatel "very isolated and in a worse position than before the merger." Say that the French would be more only that with Lucent is "absurd", added. Obtain a revision of parities is "highly unlikely because it is a merger between equals and Lucent shareholders oppose."

The bad results of Lucent: the U.S. several times revised downward its Outlook since the announcement of the merger. DK pointed out that the latest results are "catastrophic." Exane admits that "some shareholders could express their dissatisfaction to the subject of the parities after three warnings from Lucent." But our projections of profitability for Alcatel much deteriorated, while Alcatel was avoided to make a 'profit warning' official. Alcatel took the warning from Lucent to slightly lower 5 consensus. Therefore, even if Alcatel made no official warning, its deterioration reflects in fact quite well what happened at Lucent. The prospects of Ericsson, Nokia, Siemens or Motorola networks for operators deteriorate similarly. Therefore request a cancellation of the merger and the new parities has no justification.

Pensions (pension funds) of Lucent: the US says that the assets of the Fund ($34 billion) largely cover commitments (31.3 billion).

But for DK, the parameters used by Lucent are "aggressive" (8.5 of return on assets) and 5.5 of discount rates and "courageous" Auditors should "challenge". Above all, the parameters used by Alcatel in his own calculations are lower (4.7 and 4.5 respectively). "It is difficult to imagine that Alcatel, known for its relatively conservative accounting for pensions, inherits of this pension fund without substantially revise the demanding assumptions." A reduction of 1 of the performance would eliminate 14 of the value of the Fund, and therefore half of the market capitalization of Lucent. "Applying the settings of Alcatel, DK arrives with a hole in funding for 4 to 5 billion. As a result, Lucent, worth 10 billion, would "appear suddenly 40 to 50 more expensive." "After a revision downward from 30 of the assets of Lucent, the latter would not be more nothing". Argument swept by Lucent, which found "inappropriate" to apply the settings of Alcatel, due to "differences in demographics and duration of obligations".

CDMA: dependence of Lucent American mobile CDMA technology is "heavy": 86 of the turnover in the mobile comes from the CDMA and Lucent owns 40 of this market. Problem: the CDMA "is life and entered an era of inexorable decline, deplores DK. The rate of abandonment of the CDMA is faster. Since end of 2005, the Australian Telstra, the Brazilian Vivo, the Indian Reliance and the American Sprint-Nextel have announced their intention to replace their CDMA network or switch to other technologies. "Only the Japanese KDDI and Verizon American remain, at least officially, engaged in the CDMA". Therefore "If Alcatel to strengthen its mobile operations, then he bet on the bad company".

Exane answer: invoke a degradation of the prospects for the CDMA to cancel the merger is "not serious". Vivo or Reliance to the GSM projects are "known for a long time", and the direction of Alcatel was "supposed" to know them.