For those of you who follow Alcatel-Lucent closely, you are well aware of its challenges as CEO Ben Verwaayen (News - Alert) continues to right-size the company to not just improve its near-term financial performance but position it for future growth. And, if you have been watching the news and features on the TMCnet Next Generation Communications community you know that despite all of the speculation about the company, it has:
- Continued to produce (and be recognized by industry observers) for recent innovations and initiatives in the key areas of the cloud, optics, VDSL2 vectoring and wireless just to name a few.
- Scored some impressive customer wins.
- Aggressively mined or defended its trove of intellectual property.
- A program in place that is actively underway to dramatically alter its costs
Why do I mention all of this?
The reason is that it lends more than a bit of credence to the news out of Paris that Alcatel-Lucent (News 
- Alert) (ALU) entered into commitments with Credit Suisse AG and Goldman Sachs Bank USA for Euro 1.615 billion ($2.12 billion) in senior secured credit facilities. This is not just a needed infusion of capital, but a significant vote of confidence from the world’s premier lenders.
Commenting on the initiatives, Ben Verwaayen, CEO Alcatel-Lucent, said, “Today’s announcement of a multiyear financing commitment allows Alcatel-Lucent to operate and adapt our business in a manner which is appropriate in today’s markets. The proceeds from the new financing will be used to effectively extend our maturity profile over the next several years and provide additional flexibility to finalize our previously announced Performance Program priorities, including the Euro 1.25 billion cost reduction target and the exiting or restructuring of unprofitable Managed Services contracts and geographic markets. We will take advantage of the flexibility provided by this new financing in order to aggressively look at all options to drive long-term sustainable profitability, enhance our strategic positioning and improve our balance sheet.”
Expectations are that ALU subsidiary Alcatel-Lucent USA will be the borrower and Alcatel-Lucent and some of its material subsidiaries will be guarantors.
The company in describing the commitments made the following points:
- The senior secured credit facilities, as contemplated, are expected to be denominated in U.S. dollars and in euros, and will have maturities of three and a half to six years.
- It is expected that the facilities will be secured by, among other things, the intellectual property portfolio of Alcatel-Lucent.
It also noted that the commitment parties have the right to syndicate all or a portion of its respective commitments but may not assign its obligation to fund. Certain terms of the financing are subject to change in connection with such syndication, targeted to complete in Jan. 2013, and the commitment is subject to customary closing conditions.
And, finally, it was explained that certain important information, including about the company, being shared with the lenders is available on the company’s website at http://www.alcatel-lucent.com/lidec12 under the heading “2012 Lender Information.” In materials provided to lenders, Alcatel-Lucent targets for 2015 a gross margin in the range of 35 percent to 37 percent and an adjusted operating margin of 6 percent to 9 percent.
As I have mentioned many times in my postings, I am not a financial analyst, do not own ALU stock and I have no ties to the company. That said, I have watched it and its predecessor organizations, was an advisor to management many years ago and have almost four decades of familiarity with its people, products and services. It is out of that experience that I am delighted the company has gotten the resources it needs, and hope this stanches all of the speculation about its near-term viability. What the longer-term future holds is anyone’s guess, especially given the dynamism of all of the markets the company is aligning its focus around. However, the same can be said of almost any company in the sector be they major multi-nationals or hot startups.
I also cannot resist the opportunity to note that it really should surprise nobody that the intellectual property of ALU will be used to secure the commitments. Based on past valuations of the IP of companies such as Nortel (News - Alert), and the prolific production of Bell Labs in the IP area up to and including today, the word “secure” seems to have a good double entendre in this instance.
What all of this means is that the next few quarters are going to be fascinating to watch.
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Edited by
Rachel Ramsey
