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The following is a transcript of the analyst presentation conference call
conducted on April 3, 2006 by Lucent Technologies Inc. and Alcatel relating to
the proposed merger of Lucent Technolgies Inc. and Alcatel.
Analysts Presentation Alcatel Lucent Technologies
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Creating the Global Leader in
Communications Solutions
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ANALYSTS PRESENTATION
PASCAL BANTEGNIE
We are ready to start, thank you.
AT&T
Ladies and Gentlemen, thank you for standing by. Welcome to the
Alcatel-Lucent conference call. At this time, all participants are in a
listen-only mode. Later we will conduct a Question and Answer session.
Instructions will be given at that time. As a reminder, this conference is
being recorded. I will now turn the conference over to our host, Pascal
BANTEGNIE.
PASCAL BANTEGNIE
Good afternoon to all analysts and investors sitting here today with us in
Paris, and good morning to their US colleagues joining the conference by
call. Yesterday, Alcatel and Lucent announced they had entered into a
definitive merger agreement to create the first truly global communications
solutions provider. I am very pleased to have here with me today in Paris to
discuss the merger Patricia RUSSO, who is Chairman and CEO of Lucent
Technologies, and Serge TCHURUK, Alcatel's Chairman and CEO, as well as other
top executives from Alcatel and Lucent Technologies: Jean-Pascal BEAUFRET,
our CFO; Michael QUIGLEY, our COO; John KRITZMACHER, Lucent Technologies'
CFO; and John DEBONO, my investor relations counterpart.
We will begin this call with Serge and Patricia providing an overview of the
merger, and then we will open the conference for your questions.
Before we begin, let me remind everyone that PDF version of the slides that
we will be presenting today have been posted on both companies' websites,
and that we are also providing a simultaneous web cast of the call.
I also want to remind you that today's remarks contain statements regarding
the proposed transaction between Alcatel and Lucent Technologies, and these
statements constitute forward-looking statements within the meaning of the US
Private Securities Litigation Reform Act of 1995. We can offer no guarantee
of future performances or of the expected timetable for completion of this
transaction. For a complete list and description of risks and uncertainties,
I would like to refer you to the Safe Harbour statement at the beginning of
the slide presentation and all publicly filed documents of both companies
with the SEC.
Paris, 3 April 2006 1
Analysts Presentation Alcatel Lucent Technologies
Now at this point, I will turn the call over to Serge for the presentation
and he will then hand over to Patricia for the rest. Thank you.
SERGE TCHURUK
Good afternoon and good morning for some of you. It is a great pleasure and
great excitement for Pat Russo and myself to confirm now that we have
undertaken to launch a major merger of our two companies to make up the
world's leading communications solutions provider. This is not only a major
event for us two, but a major event in our industry. The question that is
coming to the minds of many is, why merge? Why now? Why Alcatel and
Lucent? Let me briefly try to say what I think are the answers to those three
questions.
Why merge? Given today's market's constants, there are two keys to success
in our business. One is technology innovation - the capability to innovate
faster and better than some of your competitors. The second key is the cost
- you also have to be a low cost player in order to be in the game. So we
believe that the combination of Alcatel and Lucent has already gone a long
way in meeting those two objectives and will create a formidable player on
the scene. Why merge? I believe these are the answers.
Now, why now? Why is this the right timing? It is the right timing because
this combination gives both companies distinct time to market advantage in a
market which is changing significantly. The business of our carrier
customers is changing, going from connection, voice and the like to content
distribution, obviously. Our carrier customers are consolidating and merging
with each other. Technology is disruptive right now. A lot goes into
network transformation. So the timing is ripe and right, because everything
is changing at this time in the industry. So, if anything, this is the time
to do it. I do believe that a number of our customers are also pushing into
the consolidation game for their key suppliers, and we think we are one of
the key suppliers.
If I look at why Alcatel and Lucent are the best fit. By the way, I am not
discovering that belatedly; it has been in the back of my mind for quite a
while. The rationale for pulling those two companies together I believe is
very compelling. It is very compelling because first of all our portfolio of
customer relationships and then our portfolio of technologies, and
particularly when we looked into detail of how they would complement or fit
with each other we were absolutely reassured, not to say impressed by the
good fit in our technology. And also they are perfect in terms of the
geographic complementarity. Just adding up the numbers of our two companies
results in something which is a sort of a dream: one-third in the United
States and Canada, one-third in Europe, and one-third in the rest of the
world, which is in our view a perfect fit.
I do believe that the fit between our two companies is just excellent.
So quickly looking at the transaction, the total combined market cap of the
two companies is about (euro)30 billion as you can see. We are doing a
merger between equals. That is a stock for stock merger, structured as a
tax-free exchange of Alcatel ADSs for Lucent shares. Upon completion of the
merger, Alcatel shareholders will own approximately 60% of the combined company
and Lucent shareholders will own approximately 40% of the combined company,
which reflects the difference in the capitalisation of the two companies.
Paris, 3 April 2006 2
Analysts Presentation Alcatel Lucent Technologies
In legal terms, the deal is structured as a reverse triangular merger, after
which Lucent will become a subsidiary of Alcatel, and Lucent shareowners will
receive a tax-free exchange of Alcatel ADRs or ADSs for Lucent shares. These
are typically a common type of structure. Regulatory approval will be
required from the EU Commission, US anti-trust authorities, and Exon-Florio.
We estimate that closing will take 6 to 12 months to be achieved.
Now what is this global company which we are creating together? It is a new
company which will be incorporated in France with executive offices in
Paris. We will choose a name later on. The North American operations will be
based in New Jersey where the Bell Labs will remain headquartered. The
leadership is agreed. I will be the Non-Executive Chairman, and Pat will be
the CEO based in Paris. There will be a board of 14 made up of 6 of
Alcatel's current directors including myself, 6 of Lucent's current directors
including Pat Russo, and two new independent European directors to be
mutually agreed upon. So that is the global company picture.
Just a few more words on the strategic rationale. When you look at what you
get when you combine those two companies, what you get is simply stated. You
get by far the N(degree)1 worldwide in wireline at a time when fixed
communications is starting to recover and finding growth again. You have the
N(degree)2 worldwide in mobility, when you add up all the positions that Lucent
and Alcatel have added together. And you also have the N(degree)2 in worldwide
services. Overall, the combined company would have something like 4.1 or 5
billion US in services which is something mounting in terms of momentum in
Europe and the Untied States.
Now the portfolio of customers is huge. Frankly I do not believe there is
any customer - small or large - that does not belong to the portfolio of
customers of either company. So we are addressing practically everyone in
the world. If I look at the benefit for our customers, our customers want
two things that look a bit contradictory on the surface. They want their
suppliers to become partners with global scope and reach, capable of
transferring know-how, technology, size, giving them assurances that they
will be around for a long time. At the same time, they also want a local
partner, because they are many of them undertaking to transform their
networks, are making big technology bets and they want to have the support of
a partner.
So they want to have both things. We believe that the combination of our two
companies more than anyone else presenting what they are looking for. 26 000
R&D engineers and 25 000 active patents. A large end-to-end communications
solutions integration capability that we both have. A leader in major areas
defining next generation networks. Pat will say much more about it but it is
quite impressive in my view. In every region, in every single country, there
is always a significant sized operation of either one to support the
customers.
Now I want to conclude quickly what I am trying to say now. I believe that
the combination that we have decided of Alcatel and Lucent is today providing
the right answers to the key issues which are today primary on the market
place. We are the answer to the ongoing consolidation of global service
providers. They are consolidating and they do not want to see a flurry of
suppliers. They want this to happen, to have clear indication from many
large customers, they are pushing for some of their suppliers to
consolidate. I believe we are the answer.
Second thing, we are the answer to the increasing network complexity as
convergence requires breadth of products, depth of services, complexity goes
with it. Putting the portfolio of the technologies of the two companies is
something which I think has no equivalent in any other competitors' hands.
Paris, 3 April 2006 3
Analysts Presentation Alcatel Lucent Technologies
Number three, I believe we are the answer for the service providers requiring
long-term reliable partners. They all undertake at various degrees and
various speeds, major transformation of their networks, which is obviously
for them a risk and they want to be supported by someone who is in the game
as a supplier or partner for a long time. This is exactly our plan.
Finally, we are the answer to the demanding needs for large R&D investments
required to maintain leadership, not only for us but also for our customers
who want to be ahead of anyone else in terms of technology.
So when you look at what we are doing, we are putting a lot of our
investment, and I would say our single major investment in the two companies
is research and development. We are putting the two together. We are doing
like pharmaceuticals do when they merge actually. We are putting a lot of
muscle into R&D and I believe we are going to increase the efficiency, the
power of our joint R&D to meet the challenges which are ahead of us.
Briefly spoken, that is the rationale of our proposed deal.
Pat, the floor is yours.
PAT RUSSO
Thanks Serge and hello to all of you here and those of you calling in from
all around the world. To expand a bit on what Serge said, this truly is a
defining moment in our industry and a defining moment for our companies. I
think we are creating an exciting combination with a compelling set of
characteristics that I would like to expand a bit on from what Serge has
overviewed.
I will move quickly through these charts as I am sure that many of you have
already seen these. First of all, when you consider a combination like we
are describing there are a few things you need to test for, one of which is,
do you have a common view of the world? Do you have a common view of what is
happening in our industry? Do you share a common understanding of what it is
the customers require? I think one of the things I would say about this
combination is we truly do have a shared vision. We have a shared vision of
how networks will transform. We have a shared vision of what our customers
require, and we have compatibility with respect to the premium that we place
on technical excellence and technical competency.
When you look at the geographic and product and customer fit, I think this is
a compelling combination.
If you take a step back and consider what are the capabilities that are
increasingly relevant to what will matter in the creation of next generation
services, next generation technology and deployment, you see four areas on
the next chart. The point here is not to go into detail on each of the
product areas, but the key point is that the combined company would be
N(degree)1 or N(degree)2 in the key technology areas that we believe are most
relevant to being able to deliver true end to end, converged network solutions
for our customers.
Let me say a few words about our position in mobility. We would have the
N(degree)2 position globally in terms of size. We bring collectively to the
combination already existing large, embedded bases of 2G networks with respect
to CDMA 1X and GSM. Alcatel has been growing their GSM business aggressively,
including in emerging markets. So we start with a combined embedded base
Paris, 3 April 2006 4
Analysts Presentation Alcatel Lucent Technologies
that is considerable. Lucent as you know is a global leader in spread spectrum
technology, 3G. It has as its foundation spread spectrum technology so we bring
that to the combination. We bring he combined scale, the opportunity to invest,
to assure continued, aggressive innovation and evolution of these technologies
as the world and the networks around the world evolve to 3G - admittedly at
different paces but as they evolve to 3G.
Additionally the position that we have in mobility in 3G will help us in
capturing the opportunity that we see ahead of us in China. We both have
positions and relationships in China. Alcatel has Alcatel Shanghai Bell in
China, and so we see this combination additionally as being well positioned
to capture the opportunities with respect to China.
Certainly in the area of the Triple Play experience, the combined companies
have tremendous strength in these areas. I think there is no question that
when you look at the kinds of services that our customers want to deliver,
video will play an increasingly important role, having strengths and
capability with respect to delivering rich video services, and video services
that can blend and mix with voice and data and text will be increasingly
important, and the combined company enjoys a strong position here when
combined with the mobility capability provides a strong capability for
ultimately what is called the quadruple play.
Increasingly, services and the ability to deliver an integrated services
capability - whether it is professional services, maintenance services,
network integration services - is becoming increasingly important as networks
evolve and as the complexities increase. The combination of both service
businesses results in a (euro)4 billion service business, of $5 billion,
N(degree)2 in the world, with tremendous strength in some of the emerging areas
like professional services, consulting services, hosting services - all that we
believe will be important in order to deliver the end to end support capability
that our customers are looking for.
The next chart really speaks to the importance of what is happening in the
core of the networks. We often talk about IMS, the transition to an all-IP
network. That is really all about the ability to create converged services
in network environments that are independent of the access device - whether
you are on a fixed network, a mobile network, regardless of what device you
are using. Lucent has a very strong leadership position in IMS. Alcatel
enjoys a strong position with respect to this area as well. So the
combination I think is very powerful. This really is the glue that will
enable the next generation services that we talk about when we talk about
converged services.
From a geographic balance standpoint, this company will truly reflect the
market. As Serge noted, about one-third of the business will come from North
America, about one-third from Europe, and about one-third from other parts of
the world including China, the Caribbean-Latin America region, the Middle
East as well as Asia Pac. When you look at the combined R&D capabilities and
the patent portfolio that this combined company has, I think it is unmatched:
26 000 at the start engineers and developers, 25 000 active patents.
Probably most importantly, an R&D investment capacity that is necessary in an
increasingly complex and fragmenting industry. That will enable the kind of
innovation that is absolutely critical in order for us to compete globally.
So, a tremendous depth and breadth from a technical, human asset, and
intellectual property asset that can in fact be leveraged.
We have talked about the fact that this combination creates significant
synergies. The chart describes the cost synergies that we have estimated.
We have quantified those synergies to be in the
Paris, 3 April 2006 5
Analysts Presentation Alcatel Lucent Technologies
range of(euro)1.4 billion or $1.7 billion. We have mutually identified these
through the planning that our teams have done in the work that led up to this
announcement. And the synergies really span across the entirety of the
business. It is not just about rationalising a portfolio but rather getting the
synergistic benefits of a larger procurement capability, consolidating
operations. Take real estate as an example. We have looked at synergies across
a number of areas. From a timing standpoint, the next chart shows that the vast
majority of these synergies we believe can be captured within two years, with
three years being the outside. Again, that is from the date of closing. What is
not included in the synergy view is any opportunity we see for a revenue
upside. That comes from the possibility of cross-selling each other's products,
incorporating what one company might have into a solution that the other is
bringing to the market, or some of the complementarity with respect to
geography and customers. We have not factored that in. We believe they are
available to us and, obviously, we will be going after them, but they are not
part of the quantification.
In terms of restructuring, we expect that there will be reductions in the
workforce of about 10%. Having said that, considerable synergies to be
gained from other than workforce reductions. We talked about the timing of
those. We expect that there would be a new cash restructuring charge of
approximately (euro)1.4 billion or $1.7 billion, primarily in the first
post-closing. I have already talked about the timing of when we would expect to
achieve these.
A couple of words on the status of Lucent's pensions. From a pension
standpoint, Lucent's pension plans remain well funded under current US
government ARISSA laws. The Company has not been required to put any cash
into the pension plans since 1996 when Lucent was formed. And currently does
not expect to make any contributions through 2007. As we look out based on
actuarial projections, and under the current laws, we believe it is unlikely
that any required contribution would have any material effect on Lucent's
liquidity through 2010. So, we very large pension assets. The good news is
that we are very well funded.
From a retiree healthcare standpoint, as you all know we provide retiree
healthcare benefits to our retiree base. We have been very focused on trying
to find the right balance between caring for the needs of our retirees and
making determinations about what is affordable. That has been the case and
we will continue to manage those costs in that way.
From a financial position standpoint, I think it is clear that the
combination of these companies creates a stronger financial base than either
of us alone. We are talking about revenues of (euro)21 billion or $25 billion,
based upon 2005 numbers; net income of (euro)2 billion; net cash position; a
strengthened balance sheet; and debt maturities that are relatively long dated,
with over 60% of the combined company's debt maturing after 2010.
So, just to wrap up here, I think this is a defining moment in our history.
I think this is a compelling, strategic combination and one that has
tremendous potential to create great value for our customers, for our
shareowners, and for our employees over time.
Thanks very much and I think we will be happy to turn it back to Pascal.
Paris, 3 April 2006 6
Analysts Presentation Alcatel Lucent Technologies
QUESTION AND ANSWER SESSION
PASCAL BANTEGNIE
We will be taking questions from this conference room and then take the
opportunity to let US investors to ask questions as well on the call.
ALEXANDER BITAK, EXANE BNP PARIBAS
I have a question for Jean-Pascal with respect to the treatment of pensions
under IFRS. Could we have a little bit more granularity on this?
JEAN-PASCAL BEAUFRET
As far as we can see now, we would account for the pension credit - which is
accounted under US GAAP - under the post OP line of financial income. This
is reflecting the difference between expected rates of returns and discount
rates, and would be accounted in the net income but post OP.
ALEXANDER BITAK, EXANE BNP PARIBAS
What happens on the balance sheet? Will there be any significant differences
on what you have now as credit and deficit?
JEAN-PASCAL BEAUFRET
Today, Alcatel has a 1.1 billion unfunded portion of their pension
obligation. Lucent is disclosing a full lot of information since 2003 about
the various pension assets, pension obligations for various types of
employees - management, representational, and international pension funds,
and OP funds. In our accounts, the unfunded portion is on balance sheet. In
US GAAP, the unfunded portion of all that is out of the balance sheet,
knowing that on balance sheet you have several assets which are accrued
pension credits, and you have as well pension and OP liability. So, since
the disclosure is complete and very transparent, we do not believe there is
any difficulty to integrate the total unfunded portion for Lucent on the
balance sheet of the combined company.
FRANK MACARY, IXIS SECURITIES
First, can you give us a time frame for the change in the law to increase the
flexibility for retiree healthcare? Is it in 6 months or 12 months that we
should expect a change? Second, from an Alcatel perspective, what will
happen on 1 June? Who will become the CEO of the stand alone Alcatel
company?
Paris, 3 April 2006 7
Analysts Presentation Alcatel Lucent Technologies
PAT RUSSO
Annually we go through and look at the healthcare plan for retirees. I
believe that is due to come up in October. That is when we would look at
what is happening with healthcare costs, what are the planned features that
we believe we can support. We do it on an annual basis and then we let our
retirees sign up for certain benefits, cafeteria style if you will, in terms
of the kinds of benefits they would like to receive in exchange for whatever
the appropriate premiums are.
JOHN KRITZMACHER
Part of the question was on what we expect the timing to be on the 420
legislation. It is difficult to say when that decision will be made.
Recently, we were expecting the decision would occur some time in the next
few weeks, by about mid-April. Now, that seems to be delayed. It could be
delayed by a matter of a few weeks or several months. In the interim we are
planning for what actions we would need to take in either case, in the event
that the legislation is passed or in the event that the legislation is not
passed. As our agreement with our labour union stands today, we have until
September to achieve the relief that we are mutually seeking. If at the
beginning of September we do not have that legislative relief then we will
have the latitude to make the necessary decisions to deal with the cost of
healthcare of retirees.
SERGE TCHURUK
My own mandate as PRESIDENT DIRECTEUR GENERALE - Chairman and CEO - goes up
to the shareholders meeting which will decide on the 05 results. This was
scheduled for 1 June. We will defer it so that at the same shareholders
meeting we can have a shareholders vote both on the transaction and on the
accounts for 05, presumably at the end of July. The Board would like me to
stay DIRECTEUR GENERALE - which is CEO - up until the transaction is closed.
So they will request shareholders to vote an exceptional by law to permit me
to stay a few more months in my job.
ALEX HENDERSON, CITIGROUP, US
As you finish this transaction out, can you talk about the response you have
got from anyone in the government on the operations at Bell Labs and what the
issues are around that?
PAT RUSSO
First of all, we have been in touch with a number of folks in the US
government, advising them about the intention of this transaction. There has
been a fair amount of communication. We have designed a structure for the US
government work that is one that has been previously and is routinely used.
When you want to care for work for the US government, we intend to form a
separate US subsidiary. It will have a proxy board of three individuals that
are acceptable to the US government. You should expect to see something very
shortly that will call out who we have identified to serve in that role.
Thus far, I have not gotten any indication that that approach is not
something that would not be reviewed and considered appropriate given that it
has been done in a number of other cases. We do not intend to separate out
Bell Labs; we intend to separate out the
Paris, 3 April 2006 8
Analysts Presentation Alcatel Lucent Technologies
sensitive work that has been done for the government either by Bell Labs or
from other parts of the organisation.
ALEX HENDERSON
Have you had any comments back from your service provider partners as a
result of this action?
PAT RUSSO
Over the course of the last year, the frequency of customers enquiring about
when they might expect to see some consolidating moves among the suppliers
was quite regular, frankly, all over the world. That is point one, and
really speaks to Serge's comments about our customers as they are
consolidating looking to partners who have the breadth and depth and scale to
tackle both opportunities and challenges. That is one point. Second, the
customers that I have spoken to - and I have spoken to a number of them -
since this initially came out have universally been positive in support of
what the combination can create and about this combination.
SERGE TCHURUK
I already received a few mails of congratulations from major customers. It
is so rare to receive a mail from a customer congratulating you that I am
very pleased to say it.
PAT RUSSO
Generally, so far, obviously I have not spoken to everyone, the reaction has
been positive.
NICHOLS THEODOPOLOUS, US
A couple of quick questions. Within the provider business for Alcatel and
for Lucent as a whole, can you let us know for Alcatel how many employees the
company has in the United States and France that work specifically in the
communications area? Second, do you have an estimate of the cash
restructuring charges that will feed into to implement the synergies?
JEAN-PASCAL BEAUFRET
Employees of Alcatel working for the communications business would be a bit
more than 8 000 in France, and a bit more than 8 000 in North America today.
The cash restructuring that is factored in this plan is 1.4, as stated in our
presentation.
CHRISTIAN DANNA, CN CONSEIL
Four or five years ago, you started merger talks between the two companies,
and it did not work out. I believe there were issues regarding Bell Labs and
Board management. What made it work this time?
Paris, 3 April 2006 9
Analysts Presentation Alcatel Lucent Technologies
SERGE TCHURUK
You were not there at that time, I was. What made the deal collapse last
time, even today it is very difficult to tell it. It was certainly not Bell
Labs, at all. At the last minute, the sort of mayonnaise did not hold
between the people - they were tired, they were angry. This time, we
prepared it much better and this time there are obviously many things that
have changed in the market place. So you can see pressure from everybody
saying, you have to do this. If I may say, we are, I think, getting along
all right.
PAT RUSSO
Yes! As Serge said, the mayonnaise did not work last time. I think it is a
different time in the industry. We have all gone through the weathering of
the storm. The dynamics and fundamentals of the industry are considerably
different today than they were even five years ago. We have tried to
structure a transaction here that gives us the best chance to execute on the
integration and create the value that we believe we can. That is why we have
structured it as a merger of equals. The relative size of the companies is
seen in the ownership of the companies, where Alcatel is the larger company
their shareowners will have 60% of the combined company, and Lucent's will
have 40%. We have split the Board so that we have a sharing of coming
together in order to create the governance and management of this new company
as we go forward. Notwithstanding all the things we have to go through to
get to closure, we have tried to put in place the mechanisms that will allow
for us to be successful going forward.
FRANCOIS DUHESME, CNC
I have a question about the way you plan to organise the new entity. Will we
see some specialised centres like mobile in the US, fixed line in Europe?
How will you decide that? How will you decide where you will cut costs, cut
people? How will you choose the people heading each division and each
project?
PAT RUSSO
First of all, we are not that far along with respect to specific integration
plans. As a result of the work done leading up to the conclusion of this
agreement, we have some thinking about where all those opportunities are
etc. So that will factor into the transition planning we would do. The way
we will attack that is really driven by business logic. Where are the
opportunities? What are the issues that need to be cared for? What is the
best set of solutions to do that? From a management team standpoint, what
Serge and I have said all along and what we have said publicly is that we
have tremendous talent in both companies and we expect to take advantage of
that talent by utilising the best talent we have in the most balanced way
possible. Expect that as we start to get the transition planning done, and
we feel comfortable that we are in a position to make any announcements about
what an organisation structure might look like or who the people might be, we
will make those. But that is specific work yet to be done.
Paris, 3 April 2006 10
Analysts Presentation Alcatel Lucent Technologies
SERGE TCHURUK
I just wanted to add that we are going to nominate - hopefully next week - a
transition team which is going to prepare all the work so that on Day-D - on
closing - we do not lose time to generate the synergies and put the teams in
place. We have already nominated a management committee which is going to
ensure continuity when the time comes between the two companies and putting
all the other teams in place. It will be chaired by Pat. It will have Mike
QUIGLEY as Chief Operating Officer of the company. It will have Frank
D'AMELIO in charge of executing, among other things, operations and all the
integration. It will have Jean-Pascal BEAUFRET as CFO. It will have Etienne
FOUQUES to look after the strategies in the emerging world. And it will have
Claire PEDINI on the Human Resources side.
RICHARD KRAMER, AREDA RESEARCH, US
You mentioned that this is an accretive deal. Can you tell us what sort of
assumptions you have made about ongoing contributions from the Lucent pension
credits that played such an important role in the profitability in past years
of Lucent? How might it be affected by the pending changes in legislation
that might allow flexibility in post-retirement benefits? Second, we have
seen Ericsson try for many years to find synergies between CDMA and GSM
businesses on the same platform. In examples like this, do you expect that
you will pick one or another product portfolio in an area like UMTS or will
you try as Alcatel has with the switching business to merge the two
portfolios over time? Third, will Lucent China be folded into Alcatel
Shanghai Bell over time, and do you expect Alcatel Shanghai Bell to play what
sort of a role in this transaction?
JOHN KRITZMACHER
With regard to our synergies and the accretion of value to shareholders, our
comments around this deal being accretive are loaded with the comments that
it excludes restructuring charges as well as the amortisation of intangibles,
so that is important to note. With respect to the pension credit, we assumed
in the analysis that the pension credit continues at roughly the present
levels. Our early analysis actually indicates that the net pension credit
may actually rise a bit, but assume that in our model the pension credit
itself is roughly flat to what we are reporting in our results for fiscal
2006.
PAT RUSSO
Let me make a comment on mobility, and then I will ask Mike who spent some
time with the teams on this. First of all, with respect to your question
about Ericsson and CDMA and GSM. They really are two different technology
bases in terms of the spread spectrum technology versus time division
technology. So what we have done inside Lucent, and then I will let Mike
speak to Alcatel, is leveraged a lot of the investment in the CDMA base
stations and technology because it is spread spectrum onto the wideband CDMA
or UMTS platforms so we have common base stations for example. We have an
opportunity we see with the combination to continue to leverage that.
I think what is very important and what we will be very careful to do, is
plot the right approach to evolve the platforms in a way that is not
disruptive to customer investments and gives us the best chance to get
economies of scale over time. Some of the reasons why you see the synergy
time frame being 24 months and then beyond 24 months are designed to care for
some of the
Paris, 3 April 2006 11
expectations we might have in terms of getting to these common platforms. We
are about evolving our customers in a way that allows us to continue to gain
share and to continue to leverage the common assets that we bring.
MIKE QUIGLEY
I will just add one more thing about what Pat said. One thing that is
obviously very important for Alcatel if you are looking at the combination of
the wireless assets of the two companies is the decision that Lucent in fact
made some time ago to base their UMTS technology as they went forward on the
same platform as the CDMA. Remember, as Pat said, these are both spread
spectrum technologies. So we see a clear path forward in being able to do
that. By the way, not every player who is in UMTS and CDMA has done that.
Some of them have in fact two different platforms which makes the job much
trickier. So our view long term is that there is going to be a convergence
of these technologies as we move forward, particularly as IP becomes more and
more important, and we start producing flat IP networks.
I will reinforce one other thing that Pat has said. In looking together the
two teams as they were studying this - and we spent quite some days on it -
we did put absolutely foremost as the N(degree)1 priority to make sure that we
has solutions as we went forward that supported our customers. That is above
the cost synergies that could be obtained; it is about making sure that we
support our customers in a very smooth migration that gives them all the
advantages but does not put them in any way at risk.
SERGE TCHURUK
The last question was about China. Today, our operations in China are
conducted in the framework of Alcatel Shanghai Bell, which we own 50% plus
one share, and the rest is owned by the government of China through various
entities. We are by the way quite happy with the cooperation and the way
this operates. We have about 7 000 people. Lucent has about 4 000 people in
China in a fully honed operation. Obviously we are going to try to unify our
operations in China. We are as I said happy with our cooperation with the
Chinese government so there is probably a way that we can unify the whole
thing and keep the sort of relationship we have with the Chinese government.
Whether or not we fold it into ASB is a possibility.
AL FIAMI, MERRIL LYNCH, US
My question is on the pension credit again. Lucent assumes 8.5% expected
rate of return on the pension asset and Alcatel assumes 4.3%. If Lucent
pension is going to report it under the Alcatel assumed rate of return I
suspect there is not going to be any pension credit at all. Is your
statement on accretion a year end statement in a sense that initially there
is going to be some dilution and only then you will work down the expenses
such that it starts to be accretive?
JOHN KRITZMACHER
With regard to your comments on the assumed rate of return, the assumed rate
of return is driven entirely by the expected returns on the allocated mix of
assets in the pension trust. The 8.5% return
Paris, 3 April 2006 12
Analysts Presentation Alcatel Lucent Technologies
is applicable to the mix of assets that we have in this trust today. Should we
choose to reallocate the mix of assets in those plans then we would need to
revisit the assumed rates of return. But otherwise the assumed rates of return
would not be changed.
JEAN-PASCAL BEAUFRET
The accretive power of the transaction as from year one you mentioned is of
course including 100% of the net income with the pension credit. But the
accretive power of the transaction comes really from the new platform we will
develop, the new organisation we will have, and the cost reduction we will
get.
MONTILLIE, PARIS
I have a first question about the agenda first. You did not give any precise
agenda. Do you think you could launch the offer before you get the
authorisation from the authorities of anti-trust in the US or in Europe? Of
course you will do it after the general assembly. Can you be a little more
detailed about the agenda?
SERGE TCHURUK
The transaction is contingent upon receiving the authorisation from the EU
and the US authorities. That is the normal practice.
MONTILLIE, PARIS
What is the maximum duration of your Agreement in case ...
SERGE TCHURUK
We estimated that it will take anywhere between 6 to 12 months.
MONTILLIE, PARIS
It means that more than 12 months that would mean that the Agreement is no
more ...
SERGE TCHURUK
12 months is plenty of time to get the agreements. We want to play it safe.
Paris, 3 April 2006 13
Analysts Presentation Alcatel Lucent Technologies
MONTILLIE, PARIS
Concerning the restructuring, you say in page 24 that there are clearly
identified overlaps and that the integration plan is to be executed
immediately post-closing. What means exactly post-closing? Are you speaking
of this year or are you speaking of 2007?
SERGE TCHURUK
I do not know when the closing will take place. Just to have a benchmark, if
it takes place 31 December 06, then it would start the putting together the
teams and generating the synergies on 1 January 2007.
PAT RUSSO
First of all, we are going to seek to get the deal approved and closed as
quickly as possible. We believe that some time between 6 and 12 months
because it is hard to tell how long regulatory approvals take. So we are
going to move as quickly as we can. During the time between having signed
the agreement and closing, after we get through what we are doing here, we
will begin transition planning which you can do prior to the closing of the
deal. So that when we close, we are able to start executing on the
integration plans just as quickly as possible. So, until the deal closes you
really cannot execute your plans; you can only make your plans. So we will
be aggressively making our plans such that as soon as we close we will be
able to integrate as rapidly as we possibility can. And when that is, is
sometime we think between 6 and 12 months.
ODO, PARIS
Why do you pay all in paper for this merger? Second, could you give me some
colours on the huge cost synergies split between IT, supply chain, headcount
reductions?
SERGE TCHURUK
Why do we pay all in paper? Because it is a merger between equals.
PAT RUSSO
It is structured as an exchange of stock. That has been determined to be the
most tax efficient way to structure a transaction like this. We leave that
to the financial experts.
SERGE TCHURUK
There are a lot of synergies. The synergies are due to things that Pat
already touched on. First of all, let me give you a few examples I think
which are not traditional restructuring. I will talk about restructuring in
a short while. Putting first of all the procurement of those two large
companies together can only result in some savings. We are not going to keep
two head offices in all the countries where we operate. We are going to save
a lot on the IS IT side of the story. I can have a
Paris, 3 April 2006 14
Analysts Presentation Alcatel Lucent Technologies
long list of supply chain improvements which are going to be derived from
taking the most efficient of the two or combining them together. Supply chain
will be optimised. That already itself leads to a lot of gains which we have
estimated seriously. The rest will be workforce reductions, which have been
estimated at around 10%, which also have been done very seriously, bottom
up. Not to the point where we can today say precisely what is going to
happen here and there but we have done work enough to be sure enough of our
ground when we state that we can reduce it by 10%. We do it with full respect
for the people whatever they are, with business logic and with due care for the
people.
SIMON DELHORN, MORGAN KEEGAN, US
I wanted to get in a couple of housekeeping points that might be easy and
then a bigger picture question. On the housekeeping side, what do you expect
to be the tax rate of the combined entity in the first year? Could you be a
bit more specific on what you anticipate the total share count would be? In
terms of the bigger picture trends, if you could give us a sense of what your
10% customer profile might look like going forward and if you have a sense of
what the pro forma would have been had you merged last year, specifically
looking at major customers like AT&T and Vorizon? Thank you.
JEAN-PASCAL BEAUFRET
The tax rate first of all. We are quite satisfied to see that we have an off
balance sheet for the combined companies of (euro)13 billion and $16 billion of
tax losses carried forward, most of it now being accrued at Lucent and only 1.8
billion being accrued at Alcatel. So, for the time being, we do not see how we
can pay a lot of cash taxes within the next years except in those jurisdictions
where there could be benefits but of course this is one of the synergies we
could raise from this transaction is maybe to better manage the way we can
still pay some taxes.
What kind of tax rate do we take into account? We do not change basically
the tax assumptions we have guided on for Alcatel. As you know this is a 10%
to 15% rate. The tax rate that we have taken into account for Lucent is in
the same order of magnitude.
You have asked as well the number of the share count which would result from
this transaction. Today's transaction would result in the issuance by
Alcatel of 881 million shares, which is a total share count of a bit more
than 2.3 billion. This is the way the ratio of 1952 works.
JOHN KRITZMACHER
The question with regard to the customer profile on a pro forma basis: we
have not gone through in detail to look at every single customer but the
specific question was around 10% customers. For those who have been tracking
Lucent closely, you will know that on an annual basis in 2005 we had two
customers that were more than 10%: Sprint and Vorizon, with Vorizon being
considerably larger than Spring. Based on my understanding of the profile of
Alcatel's customers, I believe that one of those two customers I have
mentioned may still make the cut point for 10% customer. I would say it
would be close but I am imagining there will likely be just one.
Paris, 3 April 2006 15
Analysts Presentation Alcatel Lucent Technologies
AG ARNOLD, CREDIT SUISSE, US
First, can you give us an update on your negotiations with Thales in terms of
the satellite operations? In these negotiations, are you including rail
signalling as one of the divisions that may go to Thales or is it only
satellite? Mike, you were talking about the 3G operations in the product
portfolio and talking about how Lucent products based on the same platform of
CDMA was very strong. Does this mean you will be switching over to the
Lucent CDMA product once it is integrated. You also mentioned that you have
to support your current customers on 3G. Does this mean for example for
France Telecom that you will have to continue with the Alcatel WCDMA
product. If so, where are you going to get the cost savings because it seems
like you will have to continue supporting two product bases over time? Any
comments on that please?
SERGE TCHURUK
On the Thales negotiations, our Board has recommended to continue negotiating
with our Lucent people aware what is going on. The idea is that there would
be satellites, presumably other assets including or not including what you
are mentioning about rail signalling. So we have a set of options. Whether
or not this will materialise will not affect at all the value of Alcatel in
our view.
MIKE QUIGLEY
In what I was saying before about the strength of the Lucent portfolio, you
should read nothing into it that we have any [inaudible] at this point in
time about switching over any product lines. We are going to do that at a
very detailed level, technology by technology, product by product. You
should not assume anything at this point in time. What I was trying to
indicate was a clear view from the joint teams who spent quite some time at
this that there is true complementarity and real technical strength in
bringing the two portfolios together. To reiterate what I said, we will
absolutely continue to support our customers and evolve them at the rate that
they are comfortable with. I should also so in terms of the synergies that
we see, all the synergy calculations we have done are on the basis of those
previous assumptions. In other words, we have a complete match between the
rate at which we think technologies can merge, customers can be supported,
and costs can be reduced.
PAUL SEGALLA, STANFORD BURSTIN, US
If I look at Lucent the past five, six years, there has been essentially a
movement to focus the company having divested Aviya, having divested Agir,
having divested the fibre optics business. At the same time, Alcatel has
held on to a lot of its diverse businesses. Now we are talking about
satellite possibility being divested. Can you talk a little bit
philosophically, how do you bring that together? Is the intent as a combined
business to maintain holdings outside a core communications area? Would
there be a change in the approach that Alcatel is taking to that? Second,
Alcatel has been designated a national champion by the French government. If
you could talk a little bit, Serge, about what that entails, what the
expectations of the French government for Alcatel as a national champion.
Does it have any inhibiting nature on things you might do from a business
perspective? Is it just symbolic or are there some specific requirements of
you as a company that come from that designation?
Paris, 3 April 2006 16
Analysts Presentation Alcatel Lucent Technologies
SERGE TCHURUK
I did not know we were a national champion. Of what are we a national
champion? Sincerely, are we are national champion? We are not a national
champion of anything. We are a global company with global operations
headquartered in Paris. 28% of our workforce is French, 72% is non-French.
We have directors on our Board who are several nationalities. We have a lot
of people all across the place. In telecommunications, we have as many
people in North America as we have in France. So, I am very proud to be a
national champion but one has to tell me of what.
Having said so, and I will allow Pat to comment on this, I would argue that
today Alcatel is a very focused company. Maybe you can argue that satellites
are not only applicable to communications, broadcasting and the like, it has
also some other uses which I would accept. But to a large extent everything
we do is using communications technologies. Whether or not we focus even
more is an open issue. We had a question on Thales, which is a valid
question. So the next management will see the way they want to do it, but
everything is open.
PAT RUSSO
The only thing I would add is that I think when you look at what the combined
company has in terms of assets. Take the enterprise business as an example.
Clearly, if you look at what Lucent has been doing, we have been seeking to
pursue the enterprise market through service provider relationships, hosted
applications, and service offerings through the service organisation.
Obviously Alcatel has an enterprise business. So I think the combination lays
out for us an increased set of choice and capacity to become more explicit
over time over where might we want to broaden, expand or put additional
investment in order to accelerate the growth of the combined company.
ALEXANDER BITAK, EXANE BNP PARIBAS
I would like to ask more of a technical question with respect to an area
which has had a lot of attention recently, which is EDGE service routers.
What is Lucent's view of what is so good for winning a lot of market share
there? How do you view your very close relationship with Juniper that you
have at the moment? Then the comment from the other side would be, what do
you think of the Riverstone acquisition that has been agreed upon very
recently? What was the rationale of that acquisition in view of the current
transaction?
PAT RUSSO
Let me take a crack at the first question on Juniper. Lucent has enjoyed a
partnership with Juniper. Let me say at a higher order level, partnerships
have been important to both of these companies. Given what is happening in
our industry, having an ecosystem of partners is and will continue to be very
important. Obviously when you take two companies and you put them together,
it is important to reassess, given what you now have in a combined
enterprise, how do you look at those partnerships and what might you reshape
in light of what assets you might now have. Certainly as it relates to the
capabilities that Alcatel has on the EDGE, obviously that would be something
that we would look at. In general, I think it is important to acknowledge
the value of partnerships, and our expectation of those will continue.
Paris, 3 April 2006 17
Regarding Riverstone, there is a set of complementarity we believe with
respect to the product portfolio. At the same time, as we go forward, as we
look at specific spaces and specific segments, we may have to take a look at
how to have a going forward plan that really leverages the best of what
Lucent with Riverstone has and what Alcatel has. My view is the combined
embedded relationships and assets will be important as we fight for and
compete in the emerging carrier grad Ethernet arena.
MIKE QUIGLEY
Just one point. We have a set of established integration jobs, both
companies across the world. Often if I take for Alcatel IP TV, there is a
set of embedded infrastructure in some of these deals which in fact you have
to deal with. So both companies are quite used to and have some good
processes for dealing with a lot of third party products. Some of those are
from people with which we have non-competing partnerships; others are with
people we compete with, but that is life these days. We look at these
relationships in that light. We do not see it as a big issue. As Pat said,
we will look at obviously the complete product range of both companies as we
make the technology decisions together.
PAT RUSSO
Just to punctuate Mike's point. If you think about what we are trying to do
in the multi vendor integration service space, we find ourselves at times
integrating competitors' products when we have a product that could fit in
that space. That is because that is the customer's choice. So, it is an
interesting world of competition and "coopetition" that I think we will
continue to see evolve.
KIM BODY, GOLDMAN SACHS
I wanted to ask a broader question. If we look at the NPV that you estimate
from the deal, it is obviously about a third of the existing combined
companies' value. Do your competitors sit there an wonder what opportunities
they have that could actually add that much value? Further deals in the
sector seem likely given your demonstration of the actual cost savings that
can driven and the synergies. How do you see that responding, and does that
have any implications? I am particularly interested to hear in terms of
timing, you mentioned Serge in your introductory comments that now was the
right time. Is that because you see the major network transformations
getting under way in the next few years and you want to be prepared for that,
and therefore you will gain an advantage by moving early? Or do you think
this is something that is happening now? So, I guess a wide ranging
question.
SERGE TCHURUK
Some of the numbers are quite striking. If you look at the operating income
derived from the synergies, it is higher than either one. Alcatel is higher
than the Lucent one. There is a lot of synergies and I do believe it is not
by chance. We have obviously thought about, looked at everything as
everybody else has one, and we found out that it is the Alcatel Lucent
combination that seems to be optimal in terms of synergy generation. We
strongly believe we can achieve this. I do not underestimate the
difficulties but we have done things that were frankly much more difficult
Paris, 3 April 2006 18
Analysts Presentation Alcatel Lucent Technologies
to execute as compared to what it would require to do this merger. I am not
saying that as a vague statement; I am very convinced about that. Because the
structure of the two companies is such that it fits well together.
PAT RUSSO
From a timing standpoint, this is a first move that will give us a decided
advantage in a market where capacity for innovation, size and scale do play a
role in being able to meet the expectations and requirements of our
customers. I think the fact that we are taking this step - and taking this
step first - notwithstanding all that we have to do, will clearly play to our
advantage competitively. At least that is our intent.
SERGE TCHURUK
That is the so-called prime mover.
JENNIFER TANNENBAUM FOR MARK SU, RBC CAPITAL MARKETS, US
If you could just talk a bit about the media strategy going forward for both
companies. Obviously Alcatel has had a lot of success so far in this area
with IP TV and network transformation. If you could just talk about what
Lucent will add to that and how you go out to search for providers in this
area going forward?
MIKE QUIGLEY
As you may know, both Lucent and Alcatel have been working hard in this area
for some time. It is probably true to say, Pat, that in some areas of the
world we are head to head competitors. In fact, the two of us on the short
list. Clearly both companies have quite some experience, some considerable
assets in the company. Overall, our strategy as a combined company will not
be too much different. We will bring together the assets that we have got.
We have got strong positions in various customers around the world. What it
will allow us to do is a point that we have emphasised before: let us not
forget the whole area of services and integration. The technology is one
part, but having that deep expertise in being able to integrate is also very
important. The combined company will now have a huge integration and
services capability. As well as having all the infrastructure it is a
tremendously powerful service and integration capability. I think that is
one of the most important things that will come out of the transaction.
PASCAL BANTEGNIE
Serge, would you like to wrap up.
SERGE TCHURUK
We have said a lot of things.
Paris, 3 April 2006 19
Analysts Presentation Alcatel Lucent Technologies
PAT RUSSO
Yes, we have said everything there is to say.
SERGE TCHURUK
One of the things I believe is quite important is that, a bit surprisingly,
the cultures of the two companies are very close. People understand each
other quite well; they do not lose any time; they have more or less the same
vision on many of the things. So, in my view, that is something I have a
good feel for.
PAT RUSSO
I would just wrap up by first of all thanking all of you for your interest
and your attention to this. I am very excited - as are all of the folks that
have been involved and engaged with getting us to this point - about the
possibilities that this creates for growth for the combined company, the
promise of being able to deliver against an increasing set of expectations by
our customers, and the real opportunity over time to create opportunities for
our people as well. So it is an exciting time for both companies and I look
forward to the work at hand with respect to now planning for the transition,
getting us to a successful closure, and then immediately beginning with
executing on the integration.
SERGE TCHURUK
Thank you to all of you.
Paris, 3 April 2006 20
Analysts Presentation Alcatel Lucent Technologies
INDEX
UNFORTUNATELY, WE WERE UNABLE TO CHECK THE SPELLING OF THE FOLLOWING NAMES
AND TERMS:
AG Arnold........................16 Kim BODY,............................18
Agir.............................16 media strategy.......................19
Al FIAMI, Merril Lynch, US.......12 Montillie, Paris.................13, 14
Alexander BITAK, Exane BNP Nichols THEODOPOLOUS, US..............9
Paribas.......................7, 17
ODO, Paris...........................14
ARISSA laws.......................6
Paul SEGALLA, Stanford Burstin.......16
Aviya............................16
Richard KRAMER, Areda Research, US...11
Christian DANNA, CN Conseil.......9
search for providers.................19
Claire PEDINI....................11
Simon DELHORN, Morgan Keegan.........15
Etienne FOUQUES..................11
the ratio of 1952....................15
Francois DUHESME, CNC............10
Vorizon..............................15
Frank MACARY, IXIS Securities.....7
Jennifer TANNENBAUM for Mark SU,
RBC Capital Markets..............19
Paris, 3 April 2006 21
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS AND OTHER IMPORTANT INFORMATION
This transcript contains statements regarding the proposed transaction
between Lucent and Alcatel, the expected timetable for completing the
transaction, future financial and operating results, benefits and synergies
of the proposed transaction and other statements about Lucent and Alcatel's
managements' future expectations, beliefs, goals, plans or prospects that are
based on current expectations, estimates, forecasts and projections about
Lucent and Alcatel and the combined company, as well as Lucent's and
Alcatel's and the combined company's future performance and the industries in
which Lucent and Alcatel operate and the combined company will operate, in
addition to managements' assumptions. These statements constitute
forward-looking statements within the meaning of the U.S. Private Securities
Litigation Reform Act of 1995. Words such as "expects," "anticipates,"
"targets," "goals," "projects," "intends," "plans," "believes," "seeks,"
"estimates," variations of such words and similar expressions are intended to
identify such forward-looking statements which are not statements of
historical facts. These forward-looking statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions
that are difficult to assess. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such
forward-looking statements. These risks and uncertainties are based upon a
number of important factors including, among others: the ability to consummate
the proposed transaction; difficulties and delays in obtaining regulatory
approvals for the proposed transaction; difficulties and delays in achieving
synergies and cost savings; potential difficulties in meeting conditions set
forth in the definitive merger agreement entered into by Lucent and Alcatel;
fluctuations in the telecommunications market; the pricing, cost and other
risks inherent in long-term sales agreements; exposure to the credit risk of
customers; reliance on a limited number of contract manufacturers to supply
products we sell; the social, political and economic risks of our respective
global operations; the costs and risks associated with pension and
postretirement benefit obligations; the complexity of products sold; changes
to existing regulations or technical standards; existing and future
litigation; difficulties and costs in protecting intellectual property rights
and exposure to infringement claims by others; and compliance with
environmental, health and safety laws. For a more complete list and
description of such risks and uncertainties, refer to Lucent's Form 10-K for
the year ended September 30, 2005 and Alcatel's Form 20-F for the year ended
December 31, 2005 as well as other filings by Lucent and Alcatel with the US
Securities and Exchange Commission. Except as required under the US federal
securities laws and the rules and regulations of the US Securities and
Exchange Commission, Lucent and Alcatel disclaim any intention or obligation
to update any forward-looking statements after the distribution of this
transcript, whether as a result of new information, future events,
developments, changes in assumptions or otherwise.
IMPORTANT ADDITIONAL INFORMATION WILL BE FILED WITH THE SEC
In connection with the proposed transaction, Alcatel and Lucent intend to
file relevant materials with the Securities and Exchange Commission (the
"SEC"), including the filing by Alcatel with the SEC of a Registration
Statement on Form F-6 and a Registration Statement on Form F-4 (collectively,
the "Registration Statements"), which will include a preliminary prospectus
and related materials to register the Alcatel American Depositary Shares
("ADS"), as well as the Alcatel ordinary shares underlying such Alcatel ADSs,
to be issued in exchange for Lucent common shares, and Lucent and Alcatel
plan to file with the SEC and mail to their respective stockholders a Proxy
Statement/Prospectus relating to the proposed transaction. The Registration
Statements and the Proxy Statement/Prospectus will contain important
information about Lucent, Alcatel, the transaction and related matters.
Investors and security holders are urged to read the Registration Statements
and the Proxy Statement/Prospectus carefully when they are available.
Investors and security holders will be able to obtain free copies of the
Registration Statements and the Proxy Statement/Prospectus and other
documents filed with the SEC by Lucent and Alcatel through the web site
maintained by the SEC at www.sec.gov. In addition, investors and security
holders will be able to obtain free copies of the Registration Statements and
the Proxy Statement/Prospectus when they become available from Lucent by
contacting Investor Relations at www.lucent.com, by mail to 600 Mountain
Avenue, Murray Hill, New Jersey 07974 or by telephone at 908-582-8500 and
from Alcatel by contacting Investor Relations at www.alcatel.com, by mail to
54, rue La Boetie, 75008 Paris, France or by telephone at 33-1-40-76-10-10.
Lucent and its directors and executive officers also may be deemed to be
participants in the solicitation of proxies from the stockholders of Lucent
in connection with the transaction described herein. Information regarding
the special interests of these directors and executive officers in the
transaction described herein will be included in the Proxy
Statement/Prospectus described above. Additional information regarding these
directors and executive officers is also included in Lucent's proxy statement
for its 2006 Annual Meeting of Stockholders, which was filed with the SEC on
or about January 3, 2006. This document is available free of charge at the
SEC's web site at www.sec.gov and from Lucent by contacting Investor
Relations at www.lucent.com, by mail to 600 Mountain Avenue, Murray Hill, New
Jersey 07974 or by telephone at 908-582-8500.
Alcatel and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from the stockholders of Lucent in
connection with the transaction described herein. Information regarding the
special interests of these directors and executive officers in the
transaction described herein will be included in the Proxy
Statement/Prospectus described above. Additional information regarding these
directors and executive officers is also included in Alcatel's Form 20-F
filed with the SEC on March 31, 2006. This document is available free of
charge at the SEC's web site at www.sec.gov and from Alcatel by contacting
Investor Relations at www.alcatel.com, by mail to 54, rue La Boetie, 75008
Paris, France or by telephone at 33-1-40-76-10-10.