Question

CASE STUDY

The Alcatel-Lucent Merger—What Went Wrong?

It did not take long after the merger for things to start going wrong for Alcatel-Lucent CEO Patricia Russo, who opted to leave the vendor last month after admitting she could no longer work with fellow board resignee chairman Serge Tchuruk.

It seems that this deal was not meant to happen. The original merger negotiation between Alcatel of France, the communications equipment maker based in Paris, and Lucent Technologies, the U.S telecommunication giant, tool place in 2001. However, the final detailed deal collapsed on May 29, 2001, after the two companies could not agree on how much control the French company would have, Lucent’s executive apparently wanted the deal as a ‘‘merger of equals’’ rather than a takeover by Alcatel.

The failed deal was regarded as a severe blow to Lucent’s image Industry watchers questioned how Lucent would be able to survive this most recent blow. Although it was not clear which company initiated the negotiations, it was reported that Lucent ended them after much of the senior management detected that the proposed deal would not be a merger of equals.

In 2006, however, renewed negotiations took place, resulting in the transatlantic relationship being consummated; shareholders in France approved the merger of telecommunication equipment makers. Alcatel and Lucent on September 7, 2006. However, Alcatel investor still has concern about the leadership and financial health of their new American partner. Alcatel’s chief executive. Serge Tchuruk, tried to reassure the 1,500 shareholders gathered in Paris to back the merger, saying the company- to be called Alcatel-Lucent- is ‘‘truly global and has no equivalent today and won’t in the future. Mr. Tchuruk had agreed in April 2006 to pay 10.6 billion euro ($13.5 billion then) for Lucent, in a deal to create the world’s biggest telephone equipment maker although industry watchers considered the bid as financially inadequate for Alcatel investors. The stock swap was valued at one Alcatel American depository share for every five Lucent shares. Tchuruk said the combined company would realize 1.4 billion euro ($1.8 billion) in cost savings over the following three years, in part by cutting 9,000 jobs, about 10 percent of the combined workforce. He noted that Alcatel-Lucent’s revenue would be spread almost equally across Europe, the United States and Asia, offering greater long term stability. Alcatel does most of its business is also endorsed the deal. ‘We are another step closer to creating the first truly global communications solution provider with the broadest wireless, wireline and services portfolio in the industry” said the chief executive of Lucent, Patricia F Russo, who was to retain that role in the combined company. At that time, the company had combined sales of $25 billion. Amid concerns, about the potential for cross-cultural conflicts, Tchuruk said that, while cultural

issues could arise, ‘‘everything is under way to make sure this human factor is dealt with,’’ he said, adding that Alcatel already opened as an international company with a wide mix of nationalities; English is the official language of the company. After the shareholders of both

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companies endorsed the deal, regulatory hurdles was cleared in both the EU and the U.S. An Alcatel-Lucent merger provided the combined company a strong position in several categories of equipment sold to the major telecommunications carrier: wireless telecommunications equipment, wireline equipment, wireless infrastructure, Internet routers, equipment for carrying calls over the Internet, etc.

However, success was illusive. Overall, it seemed that ‘the difficulties of integrating a French company with an American one dominated during Russo’s tenure, as the corporate culture of Lucent clashed with alcatel’s French business model. One source close to the company saw little evidence of cooperation between the two factions from the outside. In July 2008, the Alcatel- Lucent CEO Patricia Russo resigned, citing the inability to get along with Serge Tchuruk, her fellow board member, subsequently he too resigned. Much of the resentment came from Alcatel management because the overall leadership had been handed to the target company. Lucent, an unusual decision; in addition, it became clear that it was a poor decision to appoint leaders based, as she struggled to bring together the different cultures of the two companies. As the first woman to run a company listed on the CAC 40, she had to make her way in the clubby, male-dominated world where French business and politics overlap. In addition, the combined, but still rather weak companies, faced low-cost competition from now Chinese rivals and Internet technology was changing beyond recognition. Worse, demand has been weakening across the industry.

A Barron’s article in August 2008 noted that ‘‘while it might have been helpful if outgoing CEO Patricia Russo had spoken French, that’s not why she and Chairman Serge Tchuruk failed to make a go of the 2006 merger of Alcatel and Lucent Technologies. They were pushed into each other’s arms out of desperation as the industry began a painful, necessary consolidation.... the telephone-equipment business is brutal and likely to see more attrition. The marriage didn’t avert six straight quarterly losses.’’ The series of quarterly losses ($7 billion loss since the merger) led to a bombardment of negative comment an Alcatel-Lucent initiated restructuring and cut around 16,500 job. In September the new chief’s were announced- a French chairman, who lives in America, and a Dutch chief executive, who will be based in Paris. Both Philippe Camus and Ben Verwaayen were considered to have the personality and experience that cold iron out the beleaguered telecoms group’s problems. Mr. Verwaayen accepted the new job only when he found he could get along with Mr. Camus, who had already agreed to be chairman. ‘‘We share

the same sense of humour.’’ he says. ‘‘You need to have complete understanding at the top of the house.’’ ‘‘We must deliver on the merger.’’ Ben Verwaayen the former head of BT. who was appointed to succeed Patricia F, Russo as chief executive, said at a meeting with journalists. Acknowledging that there remained ‘‘a divided Alcatel-Lucent.’’ Mr. Verwaayen speaks fluent French and English. Alcatel-Lucent operates in 130 countries, and like many global enterprises, its language of business is English. He was quoted in The Economist as saying that he ‘‘sees his job as removing barriers wihtin the company and unleashing its talents.’’ But perhaps his biggest advantage in rescuing a failed Franco-American merger is that he is neither French nor American.

QUESTIONS:

1. What conditions and negotiations pushed forth the merger in 2006 that were not present in 2001?

2. Evaluate the comment that the merger is “a giant transatlantic experiment in multicultural diversity.” What evidence is there that the company has run into cross-cultural problems since the merger took place in 2006?

3. What are some of the international challenges that Alcatel-Lucent faces as it moves forward as a

its a case study and there is three questions to be answered. pls help me

Answer 1

1. What conditions and negotiations pushed forth the merger in 2006 that were not present in 2001?

Answer-In 2001,Both Lucent and Alcatel could not agree on how much control Alcatel would have.Lucent wanted the merger to be equal rather than a takeover.And Alcatel did no agree to this terms and later the merger failed

In 2006,The negotiation were working becuase both the management of Lucent and Alcatel had to do the mergeras there was more immediate concern of entry of new competitors to the market.There was increasing competition from low-cost Asian manufacturers, as well as the growing size and purchasing power of other competitors.Alcatel CEO Serge Tchuruk encourages the shareholders to back the merger to make it more profitable and gain competitive advantage over competitors from Asian countries.Because of increased competiton ,both companies came together to increase thier market share and improve thier position in the market.

2. Evaluate the comment that the merger is “a giant transatlantic experiment in multicultural diversity.” What evidence is there that the company has run into cross-cultural problems since the merger took place in 2006?

Answer-The above statement describes the nature of merger and all cross -cultural issues involved. The reason being that the merger brought together two cultural different companies and they had to find ways to make it work.First of all the language barrier is a big problem, English is the universal language of the company but French is still a necessity when dealing with French shareholders. The fact that the American CEO Patricia Russo and French board member Serge Tchuruk could not get along is evidence of cross cultural problems. Lucent executives had found it difficult to adapt to Alcatel's corporate culture.Other barrier was the close interplay between French regulators and private-sector executives.In France, business is a male dominated field and Mrs. Russo found it very hard to regulate where French business and politics overlap. France being a high context culture and the US having a low context culture may have played a role in the resignation of the original CEO and chairman. A low context culture is one in which things are fully though concisely spelled out. Things are made explicit, and there is considerable dependence on what is actually said or written. High context culture are those that communicate in ways that are implicit and rely heavily on context.Cultures can also be distinguished in terms of short-term and long-term orientation. French culture is short-term oriented where people refer to their past glories and value their traditions as well as social obligations. Long-term orientation applies to US, where according to the ‘American dream’ people can achieve everything they want in the future through hard work, dedication and luck.

The evidence can further be explained in form of cultural dimension theory by Geert Hofstede.In cultural dimension theory,there is a dimension called power distance.Power distance deals with the perceptions of individuals regarding the nature of power distribution within a society. There are no dramatic differences in power distance in both French and US cultures where the power distance among superiors and subordinates are small. In some of the Asian and Arab countries on the other hand, superiors tend to distance themselves from their subordinates and tend to exercise their power in a more intensive manner.Other dimesion include masculanity-femininity which says that there are considerable differences between France and USA that might have negatively affected the performance of Alcatel-Lucent since the merger took place in 2006. Specifically, the masculine elements of culture are valued in USA, whereas, France has femininity culture.

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3. What are some of the international challenges that Alcatel-Lucent faces as it moves forward as a its a case study and there is three questions to be answered. pls help me

Answer-

Firstly, increasing rate of technological developments. According to Ball and Ball (2005) the life cycle of most types of products have decreased significantly and companies choosing to ignore this fact risk becoming a history. As it has been stated above, Alcatel-Lucent is currently investing significant amount of financial resources for research and development purposes, however, this amount should be increased even more if the company intends to remain among the leaders in its marketplace.

Secondly, competition from Asian manufacturers. Today China is exploiting its global competitive edge of cheaper workforce and other resources and is a real threal to Alcatel-Lucient

The third point would be-unfamiliar cultures of both the companies and problem of fixing cultural differences in the post integration stage of the merger.