Monday, April 03, 2006

The Failure At Lucent

This weekend's announcement of Lucent's "merger" with Alcatel has brought forth a flurry of commentary and analysis by the business news and entertainment media today. Most of it seemed to focus on two topics: the prospects of success for the combination, and Pat Russo becoming France's first female CEO.

Both topics seem, to me, much simpler than they are being made out to be in the media.

First, let me state that I have never bought Lucent for my portfolio. While it was a high flying growth stock upon its IPO, it came down to earth long before it would have qualified as a consistently superior performer for inclusion in my portfolio. Suffice to say, I see its eventual collapse and, now, rescue via merger, as a testament to the validity of the research and philosophy underlying my equity portfolio strategy.

Regarding the combination of firms, I think you can safely say that Lucent is being taken over, but not "bought," per se, by Alcatel. As frequently occurs in this sort of deal, it's called a merger, and the weaker firm's CEO is often given the resulting CEO position, to placate investors and employees of that firm. However, since the resulting company is clearly being called "French," this, I think, leaves little doubt as to which of the two firms will, in fact, exercise the greater influence in the future.

Next, we come to Pat Russo. What better situation for the French at Alcatel to create than giving Ms. Russo the titular honor of being the "first woman CEO" of a French firm? It's already been widely pre-announced that lots of riot-causing layoffs will be required. Who better to blame than this vanguard of the French boardrooms?

Does anyone honestly think that, with Alcatel controlling the combination, and probably dominating the resulting senior staff, giving Russo the CEO job is meant as anything more than providing a sacrificial lamb? It's my guess that in a year or so, things won't be working out as expected, Russo's cultural differences will be blamed, and she will "retire to pursue other interests." Alcatel's management will be able to get back to business their way, without the distractions of American interlopers in the C-suite.

By the way, who really thinks the CEO of either of these limping telecom vendors deserves to be running the combined firm? Russo can hardly be said to have succeed in leading Lucent to success. Does it really seem likely that either CEO can succeed in leading the resulting firm to consistently superior returns in the next few years as a high-growth company? A place neither seems to have visited recently?

No comments: