Alcatel-Lucent Merger Delayed

PARIS – Merger talks between U.S. telecom equipment maker Lucent and Paris-based Alcatel appeared to have hit a delay Saturday, as the fate of the French company's satellite businesses remained unresolved.

Alcatel SA had planned to sell its satellite activities to defense electronics company Thales SA, but those talks have stalled over demands by European Aeronautic Defense and Space Co. that its own Astrium satellite unit be included in the operation.

Alcatel's board was not meeting Saturday, a person with knowledge of the situation said. Other people, who are close to the companies involved, corroborated widespread reports that Alcatel directors had been scheduled to meet.

The people asked not to be identified because the market-sensitive negotiations are confidential.

The companies declined to comment or did not have representatives available.

The French government, which owns 31 percent of Thales and 15 percent of EADS, favors a three-way satellite deal with Alcatel, Finance Minister Thierry Breton said Friday.

Two of the people who spoke to The Associated Press confirmed reports that French President Jacques Chirac has intervened to block a planned Alcatel-Thales deal that would have left EADS on the sidelines. Chirac's office has declined to comment on the reports.

Thales has rejected EADS' proposal to hand over its satellite arm in exchange for a stake in the company. Thales CEO Denis Ranque sees the move as hostile and could drop the deal with Alcatel rather than accommodate EADS, one person said.

Without knowing whether Alcatel's satellites would be part of the merger with Lucent Technologies Inc., defense experts say, the two companies could find it hard to make progress on a merger plan.

If Alcatel were unable to offload its two satellite units -- both joint ventures with Italy's Finmeccanica SpA -- it would have to convince Paris that the secrecy of their military technologies could be guaranteed.

The companies already have to address similar U.S. concerns about Lucent's research arm, Bell Labs, which does sensitive work for the Pentagon -- for example by spinning off the labs or promising to ring-fence their classified information.

Announcing their talks last week, the companies said any deal would be a "merger of equals." But Alcatel has a larger market value than Lucent, so U.S. regulators would treat any tie-up as a foreign acquisition.

An Alcatel-Lucent combination would be better equipped to resist pricing pressures from the larger telecom service providers emerging from a new wave of consolidation.

If sensitivities over military technologies can be overcome, the two companies would be a good fit, analysts say, but the deal could still face some other potential hurdles.

Lucent staff unions voiced concerns Friday about the future of the company's $34 billion pension fund, as well as health care benefits that workers complain have already suffered heavy cuts.