Alcatel-Lucent Raises $2.1B Loan To Tide Over Operations

Alcatel-Lucent (NYSE:ALU), the No. 1 provider of telecommunications equipment, said it had secured $2.09 billion in new loans intended to keep its restructuring plan going.

The Paris-based giant resulting from the 2006 acquisition of Lucent Technologies by France's Alcatel, said the loans will be syndicated next month by underwriters Credit Suisse (NYSE:GS) and Goldman Sachs (NYSE:GS).

The company, with U.S. headquarters in Murray Hill, N.J., has never been a financial success and announced it was short of cash in October, only three months after announcing a $1.64 billion restructuring plan intended to slash 5,500 jobs.

In a loan memo issued Friday, Alcatel-Lucent CFO Paul Tufano indicated 60 percent of the jobs to be trimmed will be in Europe, with only 22 percent in North America. Research personnel will be exempted, the document said.

The company employed 76,000 on Sept. 30.

As part of the deal, Alcatel-Lucent took over the remainder of the venerable Bell Labs, once the research heart of the old AT&T (NYSE:T), where the transistor was invented and physicist Arno Penzias devised the “big bang” theory.

When AT&T broke up in 1984, its Western Electric manufacturing unit was renamed Lucent Technologies. The company generated enormous profit in the subsequent digital communications boom but ran into financial trouble after 2000 and the collapse of the Internet boom. Its once vibrant Canadian rival, Nortel Networks, fell into bankruptcy, and European rivals Nokia (NYSE:NOK) and Siemens (NYSE:SIE) merged their network equipment lines before selling them this year.

Now, as the Alcatel-Lucent loan memo relates, the resulting company is encountering tough competition from China's Huawei Technologies, an entity also linked to the military, as well as its traditional rivals including Cisco Systems Inc. (NASDAQ:CSCO), Sweden's Ericsson (NYSE:ERIC), Siemens and others in building networks.

Last week, Cisco announced a new focus on software, removing emphasis on hardware sales.

At the same time, the loan documents show Alcatel-Lucent's telecommunications customers are the world leaders, headed by AT&T, Verizon Communications (NYSE:VZ), BT (NYSE:BT) and others, which might be reluctant to order equipment from a financially weak supplier.

One immediate result of the loan deal was that U.S shares of Alcatel-Lucent soared 13 percent to $1.24 on Friday, valuing the company at only $2.81 billion, a far cry from the era when the old Lucent's value exceeded $100 billion.

Despite the surge, the shares are still down 85 percent since 2007.

Although Alcatel-Lucent Lucent Ben Verwaayen hailed the bailout as giving the company “the flexibility to look at all options,” some analysts worried the money might not be enough.

Analysts at JPMorgan Chase (NYSE:JPM) warned the new cash “doesn't solve the underyling problem of long-term profitability” while Bernstein Research's Pierre Ferragu said he wasn't sure management could achieve a turnaround by mid-2015, as it wrote in the loan memos.

He cited the company's “operational challenges” and warned recovering profitability will be a major task.

The company reported a third-quarter net loss of $146 million, or 7 cents a share, compared with prior-year net income of $194 million, or 7 cents a share.