Alcatel-Lucent is exploring the sale of a division that sells switches
and communications gear to corporate clients, part of the French
company's efforts to shed 1 billion euros worth of assets by 2015,
according to people familiar with the matter.
Alcatel-Lucent SA, which
is in the midst of a turnaround and debt-reduction plan under Chief
Executive Michel Combes, has brought in Lazard Ltd to help find a buyer
for its enterprise business, the sources said this week.
the second time in three years that the telecom equipment maker has
tried to sell the underperforming division. In 2011 it explored a sale
of the entire enterprise business but found no takers. It ended up
selling only the still-growing part of the division - call center
software unit Genesys - to private equity firm Permira for $1.5 billion.
the time, potential buyers were put off by the corporate telephony part
of the enterprise business, which was losing money and weighed down
with too many workers in Europe.
A spokesman for Alcatel-Lucent
declined to comment on whether the enterprise business was on the block
again. A Lazard spokesperson did not immediately respond to requests for
comment. The sources asked not to be named because the matter is not
Combes recently said the group was "actively working" on
asset sales, and also announced a capital increase and high-yield bond
to raise $2 billion.
That prompted credit rating agencies Moody's and Standard & Poor's on Thursday to upgrade their outlooks on Alcatel-Lucent.
moves are intended to strengthen the money-losing French group's
finances and keep it competitive against larger rivals including
Ericsson, Huawei Technologies and Nokia's equipment unit NSN.
does not disclose the revenue from its enterprise activity. It said
sales to corporate clients and government brought in 959 million euros
last year, while analysts say the enterprise business is likely losing
Several headwinds facing the unit make it unlikely that
industry peers - such as Avaya, Mitel Networks Corp and Unify (formerly
Siemens Enterprise Communications) - or private equity firms will
aggressively step up for a deal, according to the sources.
main challenge for buyers is having to absorb the costs associated with
pension obligations. During the unsuccessful sale process in 2011,
buyers balked at the expense of restructuring the legacy voice business,
which is based in Europe and involves unionized labor.
addition, competitors such as RingCentral Inc and 8x8 Inc, which provide
more cloud-based phone services, have been taking market share and
could make Alcatel-Lucent's patent portfolio in its enterprise unit seem
outdated, one of the sources said.
Very few parties, if any, would likely pursue the enterprise unit as a whole, the sources said.
Menon, an analyst at Liberum Capital, wrote in a recent note that
Alcatel-Lucent could achieve "significantly higher margins" through a
sale of unprofitable business lines such as enterprise.
"A key part of the Alcatel-Lucent investment thesis revolves around its potential sale of assets," said Menon.
potential divestment comes as the telecom equipment sector could be
headed for another round of consolidation. Nokia has been weighing
whether to seek a tie-up with Alcatel or purchase its wireless assets,
Reuters has reported.
Nokia is in the process of selling its
handset business to Microsoft Corp for $7.2 billion, and will be left
with a mapping software unit, a portfolio of patents and its network
equipment business, Nokia Solutions and Networks (NSN).
combination with Alcatel-Lucent would increase NSN's market share in the
global wireless infrastructure market from 18 percent to more than 30
percent, leapfrogging Huawei and closing in on Ericsson, according to
© Thomson Reuters 2013