Alcatel board to tackle restructuring next week: sources

NEW YORK/PARIS Wed Sep 5, 2012 1:06pm EDT

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NEW YORK/PARIS (Reuters) - Alcatel-Lucent will hash out details of its latest restructuring plan at a board meeting expected next week, three sources close to the matter said, after a loss-making quarter exposed the telecom equipment maker's perennial fragility.

The meeting follows months of intense review of the business led by Chief Executive Ben Verwaayen, who enters his fourth year at the helm still trying to squeeze steady profit and cash generation from the company formed in a 2006 merger.

The agenda will include where to lay off 5,000 workers, a particularly touchy topic in France, and how to make more money from 29,000 patents after an initial project with licensing specialist RPX Corporation fell short of expectations, the sources said.

Alcatel-Lucent has also been consulting investment bankers since early summer to assess its options, including asset sales, although it has not hired a bank to help it, the sources said.

No significant asset sales are expected in the short term since the company's slumping share price and the sector's poor outlook have undercut the value of its units, sources said.

"The board meeting will review the initial findings from the review of the operations and the organizational structure," said one of the sources.

"They realize this is long overdue particularly now that did a big move with their restructuring. They realize they need to be much more aggressive about adjusting their cost structure."

Under Verwaayen's tenure, the company has radically pared back its product offerings, launched strong mobile broadband technologies and cut 1 billion euros of costs, prompting a six-month long share rally last year.

The optimism was cut short when Alcatel-Lucent faltered late last year amid cutbacks in network equipment spending by telecoms operators, particularly in austerity-hit Europe, which have also hurt larger rivals Sweden's Ericsson, China's Huawei, and Nokia Siemens Networks (NSN).

Alcatel-Lucent's market capitalization has shriveled to roughly 2 billion euros, down 93 percent from pre-merger levels. They traded at all-time lows of 0.86 euros per share on Tuesday.

Verwaayen announced a fresh downsizing shift in July that included 1.25 billion euros ($1.57 billion) in cost cuts by exiting unprofitable markets and contracts, and shedding 5,000 jobs, or nearly 7 percent of the workforce.

Analysts have warned the plan may not go far enough to solve the group's structural challenges of being smaller than rivals, offering too many products and burning too much cash.

Alcatel-Lucent's plan is smaller in scope than the restructuring ongoing at NSN, which includes firing 17,000 people, a quarter of its staff, and selling off multiple product lines to focus on mobile broadband.

Alcatel-Lucent declined to comment.

LAYOFFS

The company has not yet said where the job cuts will be made in the 130 countries where it operates, but said its 26,000 R&D staff will be protected and layers of managers eliminated.

Unions in France, where 9,500 or 12.5 percent of the 76,000-strong workforce is located, are alarmed and met a junior minister on Monday to seek help from newly elected Socialist President Francois Hollande.

The government is already struggling to minimize planned layoffs at other crisis-hit companies like Peugeot and Carrefour.

Alcatel-Lucent Chairman Philippe Camus will meet France's Industry Ministry Arnaud Montebourg on Thursday.

Sources said that sites would be closed and less-important countries see staff eliminated or go down to a single person.

"Over time grew to have an in-country presence in 130 countries but the reality of the telecom world is 80 percent of the spending is in the top 20 to 25 accounts," one of the sources said.

LENDER TALKS

As it works on cost cutting, Alcatel-Lucent has been in talks with its lenders on refinancing options. The company is sitting on a cash pile of 2.9 billion euros but has 4.85 billion in debt outstanding in bonds and loans.

In April, part of Alcatel's 1.4 billion euros five-year revolving bank credit facility expired, leaving it with the remainder of 837 million euros.

While Alcatel-Lucent said it is still in talks with banks regarding a future revolving credit facility, sources said a number of banks have been reluctant to lend due to the uncertainty around the company.

One option that could create liquidity and has worked for others in the industry, including bankrupt gear maker Nortel Networks and wireless portfolio company InterDigital Inc, would be to better monetize intellectual property.

In February, Alcatel-Lucent signed a deal with licensing specialist RPX Corporation, which analysts had hoped would generate up to a billion euros in revenue from patents in fixed and mobile communications, semiconductors and consumer electronics.

Under the deal, RPX markets Alcatel-Lucent's patents to its roughly 50 members, which include companies like Google Inc and Intel Corp. But Alcatel-Lucent has not provided details on how much it will earn from the licensing.

"So far, the deal has not given Alcatel-Lucent what they were expecting in terms of revenue," one of the sources said.

"They are going to revisit something around this; they will do it in a different form," the source said, adding that how to monetize the patents is still under discussion by the board. ($1 = 0.7935 euros)

(Additional reporting by Christian Plumb; Editing by David Cowell)

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