Telecom equipment giants Lucent and Alcatel will work through the weekend on a merger agreement, but no announcement is expected, a source close to the talks said today.
France's Alcatel is considering merging with U.S.-based Lucent, which has reported a combined $4.7 billion in losses in the first half of its current fiscal year, for little or no premium for Lucent shareholders, sources close to situation said on Wednesday.
Lucent is currently valued at around $33 billion, while Alcatel's market capitalisation on Friday was 41.5 billion euros ($35.5 billion).
The boards of both companies were said to have scheduled meetings this weekend.
Alcatel declined comment, while Lucent was not immediately available but has so far declined to comment on what both companies describe as rumours .
As talks are progressing, the management of the two companies are understood to address awkward issues such as management configuration and fiscal and legal obstacles.
Sources close to both companies have painted the prospective deal as a merger between equals, but it is more likely Alcatel would emerge as the dominant partner in any pairing, analysts and portfolio managers said. They said Alcatel Chief Executive Serge Tchuruk would need to tread carefully or risk chasing off some of Lucent's top executives.
Tchuruk and his top executives would have to walk a fine line between making the hard choices to revive Lucent, which many analysts believe includes cutting as many as 20,000 jobs and more products, and assuaging fear among U.S. workers they will be trampled as Alcatel dictates by fiat.
Alcatel also has to see the talks through Washington regulators, who will scrutinise any deal for anti-trust issues and for research being carried out in Lucent's Bell Labs which could be vital to U.S. national security.
The deal would create a telecom equipment behemoth with a strong presence in both North America and Europe, and could set off similar mergers elsewhere in the telecom equipment industry.
The talks are inspired by the aim to pool customers in different regions of the world, offering products and services through a shared global network. At the moment, Alcatel has only a small presence in North America where it intends to expand.
A Lucent acquisition would raise Alcatel's North American profile, which is somewhat low despite its purchases of Canadian telecom equipment firm Newbridge Networks last year and optical equipment firm DSC Communications in 1998.
In terms of technology the two companies have very little to offer to each other, as they mostly sell identical products which direct telecommmunications traffic around the world.
If the talks fail, rival telecom equipment companies have already expressed interest in Lucent's business units. Italy's Pirelli said earlier this month that it is interested in the fibre optic cable unit.