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LUCENT TECHNOLOGIES INC.
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On July 10, 2006, Lucent Technologies Inc. sent the following update to
employees:
ALCATEL AND LUCENT TECHNOLOGIES CONFIRM TIMING OF PROPOSED MERGER AND PROVIDE
AN UPDATE ON ACHIEVEMENT OF KEY MILESTONES
TALK POINTS
o We believe we are on track to complete our merger transaction by the end of
calendar year 2006, which is within the six to 12 month timeframe
originally announced on April 2.
o In recent weeks, we have achieved a number of significant milestones,
including satisfying some regulatory conditions to the proposed merger.
o This merger will create a world-class management team that will deliver the
best of both companies to customers around the world, and will create
enhanced value for shareholders.
o We have collectively defined the business model and associated organization
of the combined company, which will be implemented immediately upon
closing.
o We have collectively developed an organization structure that we believe
will best drive the operations of the combined company and best serve
customers.
o We have achieved good progress on ensuring a gradual migration path for
smoothly transitioning customers to the combined future portfolio.
o We are committed to being a role model company for the 21st century.
o We remain confident in our ability to achieve the previously announced
pre-tax cost synergies of Euro 1.4 billion (USD 1.7 billion) within three
years and continue to expect about 70% of these savings to be achieved in
the first two years post closing.
o We expect that the synergies will be realized according to the following
general breakdown:
>> Approximately 30% Cost of Goods Sold
>> And the remainder out of Operating Expenses
Q&A
TODAY'S ANNOUNCEMNT
1. WHAT ARE YOU JOINTLY ANNOUNCING TODAY?
In a joint release, Alcatel and Lucent today provided an update on the
timing of the proposed merger and the integration process related to the
proposed merger transaction, and unveiled additional details of the
combined company's organization and business structure, leadership team
and expected synergies.
TIMING
2. WHEN DO YOU EXPECT THE MERGER TRANSACTION TO BE COMPLETED?
We believe we are on track to complete their merger transaction by the
end of calendar year 2006, which is within the 6 to 12 month timeframe
originally announced on April 2.
REGULATORY APPROVALS
3. WHY DO YOU BELIEVE THE MERGER TRANSACTION WILL BE COMPLETED BY THE END
OF THE CALENDAR YEAR?
In recent weeks, we have achieved a number of significant milestones,
including satisfying some regulatory conditions to the proposed merger.
o On June 7, 2006, Lucent and Alcatel were notified that they had
received early termination under the Hart-Scott-Rodino US Antitrust
Improvements Act of 1976 (HSR) as it pertains to the merger. This means
that the U.S. Department of Justice's Antitrust Division has completed
its routine investigation of the merger under the HSR Act.
o On June 16, 2006, the companies filed for European antitrust approval.
4. HAVE YOU FILED FOR CFIUS APPROVAL YET?
Alcatel and Lucent plan to submit a voluntary notice of the merger to
CFIUS in the near future.
5. IS THE TRANSACTION SUBJECT TO ANY OTHER REGULATORY APPROVALS?
The merger remains subject to additional customary regulatory reviews and
approvals in the United States, Europe and elsewhere, as well as approval
by shareholders of both Alcatel and Lucent at shareholder meetings
scheduled for September 7, and other customary conditions.
ORGANIZATION AND BUSINESS STRUCTURE
6. WHAT IS THE ORGANIZATIONAL STRUCTURE OF THE COMBINED COMPANY?
The overall business will be segmented in Business Groups structured
along the global requirements of those three markets, while a
decentralized regional organization will provide strong local support to
customers.
The Carrier Business Groups, headed by Etienne Fouques will
consist of:
o Wireless, headed by Mary Chan
o Wireline, headed by Michel Rahier
o Convergence, headed by Marc Rouanne,
The Enterprise Business Group will be headed by Hubert de Pesquidoux.
The Service Business Group will be headed by John Meyer.
7. WHAT ARE THE GEOGRAPHICAL AREAS OF THE COMBINED COMPANY? AND WHAT REGIONS
DO THESE AREAS INCLUDE?
The combined company will have decentralized regional organization will
provide strong local support to customer:
The Company will have four geographic regions:
o Europe and North, which includes the UK, Nordics, Benelux, Germany,
Russia and Eastern European countries, will be headed by Vince
Molinaro
o Europe and South, which includes France, Italy, Spain, and other
Southern European countries, Africa, Middle East, India and Latin
America, will be headed by Olivier Picard
o North America, which includes the United States of America, Canada
and the Caribbean, will be headed by Cindy Christy
o Asia-Pacific, which includes China,
Northeast Asia, Southeast Asia and Australia, will be headed by
Frederic Rose
8. WILL THE COMBINED COMPANY'S FINANCIAL RESULTS BE REPORTED UNDER THE
BUSINESS GROUPS AND GEOGRAPHICAL AREAS?
The combined company's segment breakout for financial reporting purposes
has not yet been determined.
9. IS THERE AN UPDATE TO THE MANAGEMENT COMMITTEE?
The company will have a management committee which will be headed by Pat
Russo, Chief Executive Officer. The members of this committee will
include:
o Etienne Fouques, Senior Executive Vice President of the Carrier Group
o Frank D'Amelio, Senior Executive Vice President Integration and Chief
Administrative Officer
o Jean-Pascal Beaufret, Chief Financial Officer
o Claire Pedini, Senior Vice President, Human Resources and
Communication
o Mike Quigley has decided for personal reasons to assume a different
role for the combined company. He will focus on the
strategic direction of the company and will become President,
Science, Technology and Strategy. In this capacity he will devote
his attention to assuring that strategic investments align with
evolving market opportunities.
COST SYNERGIES
10. DO YOU STILL EXPECT TO ACHIEVE THE TARGETED COST SYNERGIES OF EURO 1.4
BILLION (USD 1.7 BILLION) WITHIN THREE YEARS?
We remain confident in our ability to achieve the previously announced
Euro 1.4 billion (USD 1.7 billion) of pre-tax cost synergies within three
years. And we continue to expect about 70% of these savings to be
achieved in the first two years post closing.
11. IN WHAT AREAS DO YOU EXPECT TO ACHIEVE THESE SYNERGIES?
We expect that the synergies will be realized according to the following
general breakdown as a percentage of the Euro 1.4 billion (USD 1.7
billion):
o Approximately 30% from Cost of Goods Sold
o And the remainder our of Operating Expenses
12. WHY ARE THE COST SAVINGS FROM REAL ESTATE, SUPPLY CHAIN AND PROCUREMENT
AND PLATFORM CONVERGENCE THAT YOU DESCRIBE IN THE RELEASE LESS THAN THE
EURO 1.4 BILLION (USD 1.7 BILLION) OF TARGETED EXPECTED SYNERGIES?
It's important to note that the synergies from Real Estate, Supply Chain
and Procurement, and Platform Convergence are three examples of our plans
in progress, and do not represent the entirety of the current work of the
integration teams.
As we stated on April 2, 2006, we have identified several areas that
would drive the expected synergies, including overlapping functions in
such areas as corporate activities, information technology, sales and
marketing, services and R&D, as well as opportunities to optimize supply
chain and procurement processes and to consolidate facilities.
REAL ESTATE SYNERGIES
13. OF THE EURO 1.4 BILLION (USD 1.7 BILLION) OF TARGETED EXPECTED SYNERGIES,
HOW MUCH DO YOU EXPECT TO ACHIEVE THROUGH REAL ESTATE SYNERGIES? HOW WILL
THESE SAVINGS IMPACT YOUR FINANCIAL STATEMENTS?
Of the Euro 1.4 billion (USD 1.7 billion) in targeted expected synergies,
we expect approximately Euro 100 million (USD 122 million) in Real Estate
savings.
Each of the examples mentioned impact both cost and expense.
14. HOW DO YOU EXPECT TO ACHIEVE THESE SAVINGS?
At the closing of the merger, the combined company will manage
approximately 4.3 million square meters of various manufacturing sites
and offices in 850 different locations. Through the improved utilization
of existing facilities as well as the elimination of excess space, we are
targeting a reduction of approximately 20% of costs by the end of Year 3,
which represents approximately Euro 125 million and (USD 153 million).
15. IN WHAT REGIONS OR COUNTRIES DO YOU EXPECT TO REDUCE REAL ESTATE SQUARE
METERS?
While we have performed further analyses of each business activity, It is
still too early to say where these reductions will occur.
We will take into account the needs of each business and of each
marketplace, to ensure we are best positioned to serve our customers'
needs, while achieving a competitive cost structure.
SUPPLY CHAIN AND PROCUREMENT SYNERGIES
16. OF THE EURO 1.4 BILLION (USD 1.7 BILLION) OF TARGETED EXPECTED SYNERGIES,
HOW MUCH DO YOU EXPECT TO ACHIEVE THROUGH SUPPLY CHAIN AND PROCUREMENT
SYNERGIES? HOW WILL THESE SAVINGS IMPACT YOUR FINANCIAL STATEMENTS?
Of the Euro 1.4 billion (USD 1.7 billion) of targeted expected synergies,
we expect approximately Euro 250 million (USD 305 million) in Supply
Chain and Procurement savings.
Each of the examples mentioned impact both cost and expense.
17. HOW DO YOU EXPECT TO ACHIEVE THESE SAVINGS?
At the closing of the merger, we estimate external purchases for the
combined company to be approximately Euro 8.7 billion (USD 10.6 billion).
We expect that savings derived from component purchases, indirect spend,
project sourcing and EMS relationships to amount to at least 3% of
external purchases, which represents approximately Euro 250 million (USD
305 million) of the targeted expected synergies by the end of Year 3.
PLATFORM CONVERGENCE
18. OF THE EURO 1.4 BILLION (USD 1.7 BILLION) OF TARGETED EXPECTED SYNERGIES,
HOW MUCH DO YOU EXPECT TO ACHIEVE THROUGH RATIONALIZATION AND MIGRATION
PLANS? HOW WILL THESE SAVINGS IMPACT YOUR FINANCIAL STATEMENTS?
We expect to achieve approximately Euro 400 million (USD 488 million) of
the targeted expected synergies through rationalization and migration
plans by the end of Year 3.
Each of the examples mentioned impact both cost and expense.
19. HOW DO YOU EXPECT TO ACHIEVE THESE SAVINGS?
We expect to achieve these savings through rationalization and migration
plans that will leverage the most innovative technologies and products,
and will have the highest potential in terms of growth and overall
customer satisfaction. The rationalization and migration plans will
leverage the most innovative technologies and products and have the
highest potential in terms of growth and overall customer satisfaction.
Particular emphasis has been placed on the continuous support of our
customers' investments in the installed base. Moreover, the companies
will work on ensuring a gradual migration path for customers
transitioning to the combined future portfolio to avoid disruptions
during the migration process.
WORKFORCE SYNERGIES
20. OF THE EURO 1.4 BILLION (USD 1.7 BILLION) OF TARGETED EXPECTED SYNERGIES,
WHAT PERCENTAGE IS RELATED TO WORKFORCE REDUCTIONS?
Based on recently completed analyses, we now expect approximately 55% of
the synergies to be related to workforce reductions, with the remainder
derived from non-headcount cost synergies.
21. WHAT WILL BE THE WORKFORCE REDUCTION? WHERE DO YOU EXPECT THESE
REDUCTIONS TO OCCUR?
We expect a global workforce reduction around 9,000 people across all
businesses and regions, which represents more than 10 percent of the
combined workforce, excluding the 11,000 people who will be transferred
to Thales as part of the proposed transaction between Alcatel and Thales.
# # #
SAFE HARBOR FOR FORWARD LOOKING STATEMENTS AND OTHER IMPORTANT INFORMATION
This document contains statements regarding the proposed transaction between
Lucent and Alcatel, the expected timetable for completing the transaction,
future financial and operating results, benefits and synergies of the proposed
transaction and other statements about Lucent and Alcatel's managements' future
expectations, beliefs, goals, plans or prospects that are based on current
expectations, estimates, forecasts and projections about Lucent and Alcatel and
the combined company, as well as Lucent's and Alcatel's and the combined
company's future performance and the industries in which Lucent and Alcatel
operate and the combined company will operate, in addition to managements'
assumptions. Words such as "expects," "anticipates," "targets," "goals,"
"projects," "intends," "plans," "believes," "seeks," "estimates," variations of
such words and similar expressions are intended to identify such forward-looking
statements which are not statements of historical facts. These forward-looking
statements are not guarantees of future performance and involve certain risks,
uncertainties and assumptions that are difficult to assess. Therefore, actual
outcomes and results may differ materially from what is expressed or forecasted
in such forward-looking statements. These risks and uncertainties are based upon
a number of important factors including, among others: the ability to consummate
the proposed transaction; difficulties and delays in obtaining regulatory
approvals for the proposed transaction; difficulties and delays in achieving
synergies and cost savings; potential difficulties in meeting conditions set
forth in the definitive merger agreement entered into by Lucent and Alcatel;
fluctuations in the telecommunications market; the pricing, cost and other risks
inherent in long-term sales agreements; exposure to the credit risk of
customers; reliance on a limited number of contract manufacturers to supply
products we sell; the social, political and economic risks of our respective
global operations; the costs and risks associated with pension and
postretirement benefit obligations; the complexity of products sold; changes to
existing regulations or technical standards; existing and future litigation;
difficulties and costs in protecting intellectual property rights and exposure
to infringement claims by others; and compliance with environmental, health and
safety laws. For a more complete list and description of such risks and
uncertainties, refer to Lucent's annual report on Form 10-K for the year ended
September 30, 2005 and quarterly reports on Form 10-Q for the periods ended
December 31, 2005 and March 31, 2006 and Alcatel's annual report on Form 20-F
for the year ended December 31, 2005 as well as other filings by Lucent and
Alcatel with the U.S. Securities and Exchange Commission (the "SEC"). Except as
required under the U.S. federal securities laws and the rules and regulations of
the SEC, Lucent and Alcatel disclaim any intention or obligation to update any
forward-looking statements after the distribution of this document, whether as a
result of new information, future events, developments, changes in assumptions
or otherwise.
IMPORTANT ADDITIONAL INFORMATION FILED WITH THE SEC
In connection with the proposed transaction between Lucent and Alcatel, Alcatel
has filed a registration statement on Form F-4 (File no. 33-133919) (the "Form
F-4") to register the Alcatel ordinary shares underlying the Alcatel American
Depositary Shares ("ADS") to be issued in the proposed transaction. Alcatel and
Lucent have also filed, and intend to continue to file, additional relevant
materials with the SEC, including a registration statement on Form F-6 (the
"Form F-6" and together with the Form F-4, the "Registration Statements") to
register the Alcatel ADSs to be issued in the proposed transaction. The
Registration Statements and the related proxy statement/prospectus contain and
will contain important information about Lucent, Alcatel, the proposed
transaction and related matters. Investors and security holders are urged to
read the Registration Statements and the related proxy statement/prospectus
carefully, and any other relevant documents filed with the SEC, including all
amendments, because they contain important information. Investors and security
holders may obtain free copies of the documents filed with the SEC by Lucent and
Alcatel (including the Form F-4 and, when filed, the Form F-6) through the web
site maintained by the SEC at www.sec.gov. In addition, investors and security
holders may obtain free copies of materials filed with the SEC by Lucent and
Alcatel (including the Form F-4 and, when filed, the Form F-6) by contacting
Investor Relations at www.lucent.com, by mail to 600 Mountain Avenue, Murray
Hill, New Jersey 07974 or by telephone at 908-582-8500 and from Alcatel by
contacting Investor Relations at www.alcatel.com, by mail to 54, rue La Boetie,
75008 Paris, France or by telephone at 33-1-40-76-10-10.
Lucent and its directors and executive officers also may be deemed to
be participants in the solicitation of proxies from the stockholders of Lucent
in connection with the transaction described herein. Information regarding the
special interests of these directors and executive officers in the transaction
described herein is included in the Form F-4 (and will be included in the
definitive proxy statement/prospectus for the proposed transaction). Additional
information regarding these directors and executive officers is also included in
Lucent's proxy statement for its 2006 annual meeting of stockholders, which was
filed with the SEC on or about January 3, 2006. This document is available free
of charge at the SEC's web site at www.sec.gov and from Lucent by contacting
Investor Relations at www.lucent.com, by mail to 600 Mountain Avenue, Murray
Hill, New Jersey 07974 or by telephone at 908-582-8500.
Alcatel and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from the stockholders of Lucent in
connection with the transaction described herein. Information regarding the
special interests of these directors and executive officers in the transaction
described herein is included in the Form F-4 (and will be included in the
definitive proxy statement/prospectus for the proposed transaction). Additional
information regarding these directors and executive officers is also included in
Alcatel's annual report on Form 20-F filed with the SEC on March 31, 2006. This
document is available free of charge at the SEC's web site at www.sec.gov and
from Alcatel by contacting Investor Relations at www.alcatel.com, by mail to 54,
rue La Boetie, 75008 Paris, France or by telephone at 33-1-40-76-10-10.