Alcatel-Lucent is a worldwide corporation, which provides telecommunications equipment to different countries and has located its headquarter in Paris. It aims to supply service providers, governments, and enterprises with various telecommunications solutions. The company provides the customers with date, video, and voice services. Alcatel-Lucent mainly concentrates its efforts on mobile, converged and fixed networking hardware, software, and IP technologies.
However, Alcatel and Lucent, which were two independent companies, successfully merged into one organization in 2006. The first negotiations about a possible merger of Alcatel and Lucent were held in 2001. Nevertheless, they failed to become one company at that time. Meanwhile, Lucent, a well-known manufacturer of telecommunications equipment, carried great losses and reduced their staff in the following years. Thus, the company had to lay off about 70,000 employees in 2001 and 2002 in order to compensate for expenses. In subsequent years, Lucent continued to incur losses. Therefore, the company renewed negotiations with Alcatel about a possible merger in 2006 and the parties found the common groundat that time (Jolly, 2008).Under the terms of the new contract, about 60 percent of the combined company would be controlled by Alcatel shareholders, and the remaining 40 percent would belong to Lucent. Projected sales were evaluated of about $ 25 billion a year, and market capitalization was estimated at 33.5 billion dollars. In addition, it was counted that due to the union approximately 1.7 billion U.S. dollars would be saved over the next three years(Jolly, 2008).
Many researchers were skeptical about the possible merger of two companies in 2006 as the negotiations failed in 2001. There were several reasons for this. However, according to David Jolly (2008), the major one was cross cultural challenges. Even now, the researchers claim that this issue is of great concern for various members of the united company. Regardless of this fact, the two main questions that arise are: is merger the right strategy? and what impact has the cross cultural differences on the future development of the company?
Why Did the Negotiations Fail?
The first attempt to unite two powerful companies, Alcatel and Lucent, took place in 2001. However, due to disagreements during negotiations, the merger did not happen. Eric Pfanner (2001) claims that there were two main reasons for this failure.
The first reason was that Alcatel and Lucent could not find an appropriate way for performing leadership functions. Lucent’s Chief Executive and Chairman Officer Henry Schacht said that the introduced international process looked like Alcatel wanted to control the united company, but Lucent was seeking for equality. However, the analysts asserted that such transactions were important because new values had to be imposed faster in order to prevent the intercontinental struggle. John Viney, who was European Chairman of Heidrick & Struggles stated that “If the top jobs don’t get sorted out pretty quickly, these things can fall apart” (Pfanner, line 21). In addition, he added “It’s successful when one side strongly takes over, because they can ram through their corporate culture. It’s extremely unlikely that a third culture emerges quickly” (Pfanner, line 25-26). Lucent was not satisfied with such a situation though. The main aim of the latter company was to build the relationships with Alcatel on equal rights.
The second reason was that the companies had extremely different cultures. Jeremy Duke, a well-know analyst, said that the main reason for failure was the bureaucratic “consensus” of French culture. He indicated that the union had all means needed to succeed including wires, voice and data strategy. Each party was well aware of each other`s possibilities. Nevertheless, they could not merge due to the tremendous differences in both cultures. It was obvious from the very beginning that the companies could not agree on ways of maintaining acquired people. Moreover, neither Alcatel’s nor Lucent’s Chief Director knew the language of another country. The negotiations were carried with the help of interpreters. The human factor could influence as well. This is why Alcatel and Lucent union has been named by the press as “Trouble Marriage” (Jolly, 2008).
Was a Win-Win Outcome Feasible?
It is doubtful whether a win-win outcome was feasible. There were a great number of obstacles that prevented possible success. Lucent wanted to have equal right with Alcatel, however, it could not be achieved. Lucent shares declined from 1$ to 8, 52$ in New York, at the same time when Alcatel shares decreased by 85 % to 26, 60$ in Paris (Pfanner, 2001). The fact indicates that two companies were equal from the very beginning. Alcatel never wanted to base its cooperation with Lucent on equal rights. Lucent leaders knew that if Alcatel would control the united company, Lucent would loose all its rights and be inferior to Alcatel. If the agreement has been signed between two companies, Alcatel and Lucent would have created an international Atlantic powerhouse, which could have been proud to lodg equipment, practically every data network and phone systems, on Earth. In addition, American Company pursued all share and a no-premium control of Murray Hill. This agreement would have materially increased Alcatel`s influence in America and could force the U.S. companies to unite in order to reduce the cost and deal with the telecommunications equipment demand. The secondary aim of Alcatel was to buy Lucent in order to get access to the U.S. market, which was the largest company that provided Internet routers, fiber-optics, and telephone switches (Pfanner, 2001).
The same opinion had David Henger, a well-known A.G. Edwards & Sons Inc analyst. He commented on the event “I’m surprised that Alcatel would want to take that on in a difficult environment for telecommunications equipment. It seems to me they would want to focus on their own profitability instead of taking on Lucent” (Money, line 51). The feasible outcome for Alcatel was to own 58% of the whole entry, which is more than a half. Lucent stakeholders had to receive 0.2435 of the fixed exchange Alcatel’s shares for each Lucent’s share (Pfanner, 2001).
In conclusion, Alcatel was aimed at satisfying its own interests from the very beginning. This can be explained by its desire to own the major share and take over Lucent. The latter, however, wanted to fight for its rights. For this very reason, win-win outcomes were not possible.
How did Cultural Barriers Influence the Negotiations?
Cross cultural challenges, according to William Holstein (2007), became one of the major factors that caused the failure.
The first dilemma was who had to be in charge of the united company. The Chief Executive Officer became Russo and Tchuruk was chosen as the Chairman. According to U.S. cultural terms, this meant that Russo being CEO was in charge. However, under the European terms, particularly French conditions, a Chairman is the one who runs a company.
The other cultural problem concerned the different way of thinking about the company`s future steps during the crisis. The Americans have overcome crisis rightsizing the business, or reducing the cost decreasing the number of employers. The French have defended employers by looking for support from the government. Therefore, the united company would not increase the number of offered jobs, because each party was trying to protect their compatriots.
Alcatel’s former board member, Johann Gunther said that “The French and the Americans have hugely different ways of doing business. Within Alcatel-Lucent, there is resistance to making the tough decisions to rationalize the business because each side is protecting its own turf” (Holstein, line 17-20).
The merger, which is based on the cross cultural issues, according to Holstein (2007), can work, but only for the particular period of time. It can be also appropriate in case of business growth in the both parties. However, cultural strains can lead to inevitable consequences such as collapse of the whole business.
To conclude, cultural barriers have influenced the negotiations to a large extent. However, these cultural differences have helped after the merger. Thus, geographical opportunities and cross functions have increased the company`s level of development. Furthermore, using the best qualities of two cultures it has become possible to create the needed atmosphere; and the experience of both companies has improved the major strategies.
How Did the CEOs Led and Manage the Negotiations?
It is a commonly known fact that it was the responsibility of CEO to control the merger negotiations between Alcatel and Lucent. These negotiations have been carried by Lucent Chief Executive Officer Henry Schacht and Alcatel Chief Executive Officer Serge Tchuruk. The discussion lasted for less than 6 month. Particular attention must be paid to the fact that it became obvious that Alcatel wanted to take over Lucent only at the last stage of negotiations. Henry Schacht focused on the benefits of the possible merger mainly to make Serge Tchuruk agree on the terms stated by Lucent (Pfanner, 2001).
It become obvious that negotiations would fail midday after Lucent’s board rejected the terms of the deal for $22 billion. In addition, negotiations were held over the phone to avoid personal contact. Henry Schacht informed Serge Tchuruk that his company was forced to stop negotiations, because, from their point of view, the deal was rather a takeover than an equal merger.
The participants of the final stage of negotiations, which was held in Paris suburbs, claimed that slide presentation and press release of analysts of Wall Street were signed by both Chief Executive Officers. It was stated that about 58%-42% of ownership rights had to be given in favor of Alcatel and a no-premium all-share deal would be left Serge Tchuruk Chief Executive Officer. In addition, Henry Schacht was appointed as non-executivе Vice Chairman of the united company (Pfanner, 2001).
Lucent’s CEO Henry Schacht was actually the initiator of the negotiations. Having put a lot of efforts and spent much time on discussions of the future of the company, both executives hoped to come to a common conclusion and sign the agreement. Both sides were open to collaboration and negotiation, however, Alcatel did not want to consider the equality and insisted only on its domination (Jolly, 2008). Taking into account the reasons provided above, the deal could not be closed in 2006.
Was the Merger the Right Strategy?
Now, when the merger between Alcatel and Lucent happened, we can say that it was necessary. However, being oblivious to the future of two companies, the merger was the best solution for both of them in any case. The situation of the market was deteriorating. The union was the only way to prevent the companies from collapsing. In addition, the merger provided both Alcatel and Lucent with new possibilities.
Lucent’s situation in the market could have been better at the beginning of 2001. Lucent was said to be on the point of going bankrupt. The restructured plan was needed to be implemented in the nearest future. However, the analysts were doubtful if the company could develop on its own. Lucent was unlikely to survive the market competition without Alcatel’s support.
The united company, according to official data, had to obtain pre-tax cost of about 1, 4 billion euro annually. This cost was expected to be reached within three years. The merger of Alcatel and Lucent was predicted to become the biggest global support and service provider organization in the telecommunication industry with the leading status in communications equipment and solutions. The merger could lead not only to an increase of the number of customers, but suppliers, and gadget providers as well. Both Alcatel and Lucent had considerable experiences. Its cooperation would help the companies to succeed in the further development. Moreover, the track record has been already proved, therefore, the companies could easily agree on the proper strategy for avoiding previous mistakes.
Alcatel would also succeed in the projected merger. However, its positions in the market was not deteriorating as much as Lucent`s was. As it has been already mentioned before, the main Alcatel`s aim was to penetrate into the U.S. market, which was the largest provider in terms of Internet routers, fiber-optics, and telephone switches (Pfanner, 2001). This would give the guarantee of the steady and fast Alcatel future development. In addition, due to the merger, Alcatel would attract more customers.
Why Was the Second Round of Negotiations in 2006 Successful?
The second round of the negotiations in 2006 was indeed successful as the parties had evaluated all problems, which they faced previously and tried to focus on a win-win strategy. Both CEOs spent more time communicating, evaluating all advantages and disadvantages, and taking into consideration all details. According to Leckness (2006), Alcatel’s CEO Serge Tchuruk succeeded in reassuring 1500 stakeholders, which supported the conditions of the merger.
Both companies agreed on combining their businesses in accordance with the agreement, which was described in details. At that time, even cultural challenges had been taken into consideration. Each attempt tо buy shares оf Lucent’s common stock was converted to ordinary Alcatel shares. Furthermore, each exchange ratio was calculated in euros, but not in U.S. dollars. Company was renamed to “Alcatel-Lucent”, but not “Alcatel” as it was discussed in 2001 year (Leckness, 2006).
The equality was obvious as the new board of directors agreed on it. Thus, the united company was formed out of 5 Alcatel members: Frank Blount, Daniel Bernard, Jozef Cornu, Daniel Lebègue, and Jean-Pierre Halbron; and out of 5 Lucent members: Henry Schacht, Linnet Deily, Karl Krapek, Robert Denham, and Edward Hagenlocker. Two people have become independent directors, one was European and another was French. The agreement pointed out that the main office of the newborn company had to be situated in Paris. The whole system of collaboration was discussed in such a way that Alcatel and Lucent could not make any steps without each other’s agreement. The system of penalties had been established in case one party would not obey the rules (Leckness, 2006).
The merger was eventually singed in 2006 after the parties had taken into consideration all details, and created a win-win collaboration. Moreover, the cultural differences were evaluated and non-discriminatory policy was created.
What Are the Key Elements I Learned from this Case?
In conclusion, a number of issues can influence signing the agreement, especially, when it concerns large companies. This is why, negotiation is needed. It is a time consuming process, however, if both parties are interested in collaboration, the merger will happen in any case. Alcatel and Lucent case is the best example of cross cultural negotiations. In 2001, they made the first attempt, although, they did not succeed. We have already found out, that one of the reasons for failure was the difference in cultures. They made the other attempt and merged in 2006.
The major lesson that should be learned from this case is that neither party should try to be superior to the other. During negotiations all parties are willing to win. The common agreement will never be found if one party tries to take over. On the other hand, all aspects should be taken into consideration, especially cross cultural challenges that can prevent the deal from closing including the terms, strategies, way of thinking, even gestures. The last stage of negotiations in 2001 was carried out over the phone, however when it concerns the cross cultural negotiations, the eye contact is crucial. Non-verbal communication is the key factor that needs to be taken into account when the parties are from different cultures. In some cases, this type of communication can be the best way of persuasion. What is more, in order to have the productive cross cultural negotiations, such factors as negotiation environment, ideological and sub-cultural and cultural differences, foreign bureaucracy, foreign government and laws, political instability and economic changes have to be considered as well.