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Last Updated: Monday, 3 April 2006, 23:24 GMT 00:24 UK
Alcatel merger 'will save $1.7bn'
Alcatel logo
The merger could spawn industry consolidation say analysts
French phone equipment firm Alcatel could save up to $1.7bn (977m; 1.4bn euros) through its planned merger with US business Lucent Technologies.

Alcatel chief Serge Tchuruk added that most of the savings would be made in the first two years of the tie-up.

Under the deal, valued at around $14bn, Alcatel will hold 60% of the new firm.

The merger - announced on Sunday - will result in 9,000 jobs being cut across the two companies, representing 10% of their combined workforces.

Mr Tchuruk added that the savings the merger would produce could be even higher than current estimates.

'Conservative' forecasts

"Cost synergies have been calculated in very cautious way. We've been very conservative," he told reporters.

We see significant risk of a merger [between Alcatel and Lucent] that ends up destroying value
Nomura bank

The estimated savings of 1.7bn was considerably higher than analysts had expected from a merger between two companies that have little business overlap.

News of the deal drove shares in the two companies higher on their respective markets, with Alcatel rising 4.8% to 13.38 euros in Paris and Lucent shares ending almost 1% higher at $3.08 in the US.

Together the companies will have total revenue of $25bn (14bn), which is in line with industry leader Cisco.

The merged firms will also be in a stronger position to negotiate prices with customers, as well as having a stronger research and development capacity.

Mixed response

Analysts predict the deal could foreshadow a wave of other mergers within the telecoms equipment industry.

While most analysts were positive about the move, some were more wary.

"Lucent has been struggling for years to improve its profitability with little success," Japanese bank Nomura said in a report.

"We see significant risk of a merger that ends up destroying value."

The merger comes five years after a previous attempt to join Lucent and Alcatel failed.

Alcatel, which has a strength in high speed digital subscriber technology, should benefit from Lucent's dominance in wireless technology and contracts with big carriers such as Verizon Communications.

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