In a statement, both companies announced that the negotiations in Paris had failed, but did not disclose why they terminated their discussions.
"Alcatel and Lucent Technologies confirmed that they have been in discussions concerning a possible merger of the two companies. They stated that these discussions have not resulted in any agreements and have been terminated," the statement said.
It was also the first time the companies had confirmed that the talks were underway.
Not equal
The deal would have marked one of the largest takeovers of a US technology group by a European company.
Reports quoting unnamed sources had valued the deal at $23.4bn which would have given shareholders of the French company 58% of Lucent.
But the negotiations reportedly hit a wall when Lucent insisted on the deal being organized as a merger of equals, with equal representation on the board of directors and on top management.
Hard times
Since January, Lucent has announced plans to reduce its work force by up to 16,000 jobs as it streamlines operations and sells off some of its factories.
Analyst Steven Koffler, analyst at First Union Securities said Lucent faces an uncertain future without the backing Alcatel would have provided.
"This is going to be tough because of a lot of internal problems they're having and because of the state of the industry right now," he said. Lucent, which was spun off from AT&T in 1996, is among the most widely held stocks in America.
Its predecessor Bell Labs played a leading role in the development of the transistor, the laser and superconductors.
But Lucent has fallen on hard times amid a string of strategic blunders and profit disappointments that led to the ousting of chief executive Richard McGinn and a major restructuring.
The company's shares are hovering at about one-tenth of their all-time high, hit in late 1999.
Share slump
Under chief executive Serge Tchuruk, Alcatel has been developed into a diversified maker of cell phones, high-speed telecom and internet equipment.
Analysts say the Lucent deal would have made it a major player in the US market.
More than half of Alcatel's sales are in Europe, while 23% of its revenue comes from the United States.
In trading Tuesday on the New York Stock Exchange, Lucent shares were down 11.5%, or $1.08, to close at $8.32 a share, while Alcatel's US shares were down 70 cents, or 2.5%, at $27.41.
In extended trading Lucent shares rose 3.4%, or 28 cents, at $8.60 a share, while Alcatel's U.S. shares were up $1.79, or 6.5%, at $29.20.