Lucent’s Acquisition Epiphany

Apparently sometime yesterday the top managers of Lucent Technologies figured out something crucial about their widely followed merger negotiations with French company Alcatel: that they were about to be acquired. Maybe that’s not so surprising, since the all-stock deal reportedly would have meant that Alcatel shareholders would end up with 58 percent of the merged company, and Lucent with 42 percent. Nevertheless, Lucent apparently was looking for a “merger of equals.”

Yes, the merger of equals, an interesting creature, one that is captivating in the abstract but elusive in real life—it’s sort of the monkey man of M&A. There are a lot of reasons for this. First, someone has to have the top job. Often the chiefs of the two merging companies divide the chairman and CEO roles and maybe raise each others’ hands in victory and camaraderie at the press conference. Later, one of them often freezes out and ousts the other one.

Another frequent snag is how to divide board seats, and that was apparently the problem in this case. Lucent’s chief wanted a free hand to add two more members to the merged board, so that each side would have eight members. Alcatel’s chief, the reports say, wanted some say in the matter. And things went downhill from there.

Variations on this not-shocking discovery—that in any business merger, one side is going to end up dominant—are played out constantly, from the smallest family shop to the most massive international deals (DaimlerChrysler comes to mind).

Lucent’s current chairman, Henry Schacht, is actually supposedly only serving on an interim basis, having left and then returned to the company after his successor (and protégé) was canned by the board last year. In theory Schacht will leave when a permanent replacement is found—or the company finds a merger partner. The alternative to merging (or being acquired) is a long and probably grueling restructuring; and while Lucent has an indirect claim to an impressive history (Bell Labs, etc.), it’s more recent history is not so great—its formerly high-flying stock has slumped, and the company has extreme debt and credit problems in the short term.

Given this, you would think that Lucent and Schact would be highly motivated to close the deal. And you would think that they’d recognize, as well, that they were not exactly dealing from a position of great strength. In short, you’d think they’d realize that they were being acquired. Sadly, they did not (they say) until that 11th-hour problem with the board seats. Another false sighting: The hunt for a true merger of equals continues.