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December 13, 2000

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Subject:  Anatomy of a Rumor
Author:  TMFMycroft

Anatomy of a Rumor

After the first initial shock that I experienced when first reading the rumor of the proposed buyout of Lucent Technologies by Nokia Corporation, I fell on the floor laughing that people actually believed this stuff and bought into Lucent Technologies today.

Don't get me wrong; Lucent has some wonderful product offerings that Nokia could use if they were to do a deal, but for Jorma Ollila to pay $60 Billion for a company with no CEO and hardly a management to speak of, would be just totally unFoolish from a Fisher perspective.

With Nokia you have a company that has built itself into the 5th most powerful trademark in the world by building internally, step by step. Jorma Ollila is very concerned about the trademark and would never do anything to tarnish it. A Lucent Technology buyout would bring chaos into the organization for it would introduce Un-Nokian cultural elements into the fold. I am sure that Nokia could reform Lucent Technologies, but it is my opinion that they do not need to. With $60 billion in cash Nokia could build another Lucent from scratch for half the cost.

As was posted by our friend OWT, Nokia is hiring people in droves and cannot fill up the spots for its own growth. In other words, they are killing themselves just to find people to run their own company; why would anyone think that they would take on the huge responsibility of buying and restructuring Lucent Technologies, a company that is definitely struggling to get a sense of direction?

Nokia would definitely use Lucent's strength in CDMA Networks and Bell Labs, but they would then have to break off or sell bits of the company that don't work from a Nokia perspective. Nokia, as you all know, is a finely tuned engine and the last thing you want to do with such an engine is tinker with it.

The manpower of Nokia would definitely be stretched as they would have to infiltrate Lucent's inner workings and convert them to the Nokia way of thinking. In my experience as an Analyst this hardly ever works. The only company that I know that can pull this off is Cisco Systems. I am still waiting for the day when Cisco Systems will make that dumb move and buy a lemon, but up until now they have been perfect.

Nokia had a chance to buy Qualcomm and didn't do it. Qualcomm for me would be the perfect fit for Nokia, as they will have complete command of the CDMA market royalty stream, which should be highly profitable when 3rd Generation wireless comes to town in 2002-2003. What would Lucent offer to Nokia that they can justify to shareholders an expense of $60 Billion? It's not there.

I used to own Lucent Technologies, having bought it when it was first split off from AT&T. I paid about $8 for it, split adjusted and loved it. It had gone all the way to $85 before coming crashing down to earth. The reason for the crash was questionable management decisions. Nokia has seen the terrible deals that Lucent has done in the past and is probably laughing at how stupid they were instead of mulling over how they will restructure them. Jorma is probably laughing himself sick from these rumors today. I sold Lucent at $48 this year, for those keeping score.

From a Wall Street perspective, Nokia's stock would have fallen 20% today if even the slightest thought of the buyout would have entered the mind of the traders. As an Analyst I find it a cheap way to manipulate markets by trying to pull off a mini-arbitrage. I just wish Nokia would come out with a statement denying that this would ever happen so we can get back to normal in building the premier Global Handset Company in the world.

Lucent's patents, which must be in the 30,000 range by now, would be inviting to control and Nokia would definitely turn the company around. Nokia would install some top management into the company and incorporate Bell Labs into Nokia's $Billion Research and Development powerhouse. That it would work I have no doubt, but I doubt I would hang around to find out. As everyone knows I have a large chunk of change riding on Nokia and I am not interested in restructuring projects. I bought Nokia because they are doing all the right things at the right time. This would be the wrong move at the wrong time.

From an investing perspective I would definitely lighten my position considerably if Nokia made such a move. Since I have analyzed every move Jorma has ever made, I can say with confidence that this deal will not go through. Someone very smart on Wall Street made some serious money spreading this rumor and I am disappointed in the reporting agencies for even mentioning something so ridiculous.

TMF Mycroft

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