In looking at the strategy that was devised for the merger of Alcatel-Lucent, one can perfectly understand why this looked good. The firms are complementary, their merger would increase market share, and they offer a wide range of product lines that would allow them to compete with anyone in the world. The problem has been that they are now competing with everyone in the world, and it is destroying them. Perhaps before detailing the reasons for this, one should look at this merger from its beginning. In this manner, we can gain a better perspective on the strategy of the merger, and why it has not performed as well as expected. Lucent Technologies was a firm based in New Jersey that had ties to Verizon Wireless in their cellular phone division. It was headed by Patricia Russo, a poor speaker of French and one who is still uncomfortable with the language. Alcatel SA was a French company with strengths in worldwide fixed-telephone line technologies and broadband service. Led by Serge Tchuruk, the firm had an entrepreneurial culture but the added baggage of French government oversight and EU regulation. The merger was supposed to create a technology superstore where firms could purchase all of their technological needs and services from one company. With the worldwide footprint, the firm felt comfortable with its place in the market but its acquisition of Lucent would be sure to spur inroads into the US cellular market. Lucent has had trouble adopting past the language barrier, leaving this merger losing profits every quarter since inception. As Mark Sue of RBC Capital Markets stated, “I think Alcatel-Lucent was a merger that sounded good in a PowerPoint presentation.”1
The reasons why the merger went forward were proactive in strategic nature. Alcatel wanted to achieve economies of scale in merging with Lucent. As stated, “In telecoms scale is vital. Without significant scale, profitability suffers. In that context, mergers are presented as the best means to create scale,” and that is why this move went forward.2 Cost savings through synergy were expected to be large in addition to providing new service and product lines. Alcatel