Will Alcatel-Lucent Ever Make a Restructuring Move?

Alcatel-Lucent's (NYSE: ALU  ) one-year 310% rally began with plans and promises of a new company, one that was leaner and more profitable. Alcatel has been plagued for the better part of the last decade by higher costs, inconsistent growth, and a large debt load. Yet, like Nokia (NYSE: NOK  ) , a large acquisition can transform the company, but the biggest question remains whether or not Alcatel will make such a change.

A year of telecom buyouts
Sometimes, a large transformational change can be great for shareholders, providing a struggling company with cash and often removing an unwanted overhang.

In the telecom (related) space we've seen two high-profile transformations in 2013. Verizon bought its remaining 45% stake of its wireless business from Vodafone (NASDAQ: VOD  ) , and since then, shares of Vodafone have more than doubled the performance of the Dow Jones. The reason is because Vodafone received $130 billion, and was then able to pay off its $66 billion in debt and increase its $20 billion cash position. Thus, the sale of its wireless segment was a major move, but strengthened the company, and gives it flexibility moving forward.

Also, Nokia sold its handset business to Microsoft and has soared 55%; Nokia has doubled if you count its price prior to the buyout announcement. In the case of Alcatel, a transformative sell of assets could spark a similar reaction, as the company has several overhangs that prevent total company revenue and margin growth.

What's Alcatel's next move?
Unfortunately, there are now serious doubts as to whether or not Alcatel will ever divest any of its assets.

For those unfamiliar with the Alcatel story, the company secured $2.1 billion in debtfrom Goldman Sachs in December 2012 to undergo a massive restructuring program. The company's CEO, at the time, Ben Verwaayen discussed the sale of several slow-growing or unprofitable segments of its business.

Then, Verwaayen and many of the company's top executives resigned, and in comes Michael Combs as the new CEO. Combs provided a new plan, to cut costs by $1.25 billion and sell another $1.25 billion worth of assets. Since then, Alcatel has taken advantage of its inflated stock price with a stock and bond issue worth nearly $1.3 billion. Keep in mind, this does not pay back the debt from Goldman.

 Also, the company axed 10,000 jobs in an attempt to cut costs. While the market responded well to this news, investors should note that Alcatel'c current employment of 70,000 workers is down 50% from 2008.

Since 2008, Alcatel's revenue has declined drastically; its debt-to-assets ratio has risen; and its stock has fallen nearly 30%. Essentially, Alcatel has been operating the same business plan from the last five years, but its higher stock price has given the company more leverage to raise money. Moreover, given the unexpected CEO change, one has to entertain the idea of conflict within the board regarding how to restructure Alcatel.

Rumors but no action
Alcatel has yet to complete one sell of its assets.

Back in January, Bloomberg reported there were several interested bidders to acquire Alcatel's submarine-cable business – a struggling unit – for $1.1 billion. Still, as of today, nearly one-year later, there has been no known progress.

Moreover, Reuters reported in November that Alcatel was looking to sell its enterprise hardware/software unit. Not to mention, in September Reuters also reported that Nokia was seeking to buy Alcatel's mobile infrastructure business, its router business, or perhaps the entire company.

Nokia has a lot of options and is looking to become larger in the telecom equipment industry now that it has $20 billion in cash following the Microsoft deal. However, a couple weeks ago, the Wall Street Journal reported thata Nokia and Alcatel deal would not occur. This leaves us to wonder what Alcatel management is doing and if any restructuring will ever occur?

A company that's standing still
Essentially, Alcatel-Lucent has not changed one bit, but the market has rewarded the stock as if great moves have been made on behalf of the company. During the company's most recent quarter its total sales grew just 1.9% to $4.91 billion .

The company saw strength from router sales and wireless access, which rose 7% and 13% year-over-year respectively to create nearly $2.4 billion. Yet, the story for Alcatel-Lucent during the last five years has been the bad replacing the good. Hence, optical transport sales, carrier software, and managed services all fell 1.8%, 3.6%, and 28%, respectively, year-over-year to account for sales of more than $1 billion.

Thus, for long-term investors, it is very struggling to see businesses such as the submarine, optical, and software weigh down the fundamentals when there has been acquisition interest. This simply proves that Alcatel-Lucent is standing still, and not making the moves to support its stock movement.

Smaller equals gains
The big question is why none of these disposable assets have been sold if buyers are present?

Honestly, there are no answers to this question, it is simply speculative. However, if Alcatel doesn't soon start making good on its promises then its stock will reflect the fact that no significant changes have occurred in the last year.

This could be catastrophic at these levels, and is a cause for real concern. Hopefully, the board makes changes and sells the assets that are weighing this company down. Unfortunately, given the executive changes, the lack of action, and the announcement of yet more job cuts and stock dilution, it appears that Alcatel is not preparing itself for any real changes, which is not good for investors.

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Read/Post Comments (4) | Recommend This Article (2)

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  • Report this Comment On December 03, 2013, at 2:52 PM, greenlust wrote:

    With numerous new contracts, an improving balance sheet including new liquidity and few employees, and a possible re-listing on the CAC 40, there is plenty to move this stock upward and the sale of assets can wait for a decent bid. I am sure there is a price if Nokia or anyone else really wants the wireless sector. It is probably best to tread softly on asset sales at the moment if there is any tension with the French authorities who might perceive such a sale as bypassing their desire to preserve jobs in France. Let the waters settle, increase jobs on the more lucrative fronts to show good faith, then sell-away. Let's see where we are in 9-12 months. GL

  • Report this Comment On December 03, 2013, at 3:56 PM, london523 wrote:

    I love these fools try and spread the half truths and negative rumors.... Tomorrow stock will be positive mark my words ....12/3/13 on 4th up day ...these guys need to do they're homework and stop the negative slants on every stock that is making a turn around and moving in the right direction .... Watched the same mantra on clwr

  • Report this Comment On December 03, 2013, at 8:01 PM, Greatrun wrote:

    Greenlust

    Waiting and pondering is exactly what has gotten ALU where it is now as a going concern. Namely teatering on the verge of BK. ALU has huge issues culturaly. I am not speaking across the pond culture but a culture of complacency and inaction that runs from the boardroom to bathroom cleaners. ALU employees simply are not held accountable nor are the boardroom members And exec management.

    They all have resriuctured so many times all parties are numb and deer in the headlights as the semi approachs. They simply dont understand how clise to the end they are.

    Why would nok or any sound company fork over good money now when ALU will simply spin itself into BK eventually?

  • Report this Comment On December 03, 2013, at 11:04 PM, youngblood58 wrote:

    I think ALU will divest itself of several businesses and patents. They just sold patents to Vringo and have enlisted Lazarus Capital to help them sell their enterprise hardware/software unit.

    I think they just want as much as they can get. They aren't going to make quick deals, and now that they are in a better financial situation, they have bargaining power they didn't possess a year ago.

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