The French telecom equipment company Alcatel-Lucent has landed a financing package of €1.615 billion ($2.1 billion), which will help it to refinance its debt and escape the red zone. This deal has generated much interest in the markets and, compared with premarket trading, its shares have increased by around 10 percent.
The financing pack comes from incumbent banks Credit Suisse and Goldman Sachs. Alcatel-Lucent stated that the money will be used towards broadening its maturity profile and offers extra flexibility in the next few years. This will allow for the completion of its previously publicized program of restructuring, which combines cost-cutting initiatives totaling €1.25 billion.
The CEO of Alcatel-Lucent, Ben Verwaayen, said: “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.” However, some analysts state that this may not be enough.
JP Morgan Chase analysts warned that the new financing pack “doesn’t solve the underlying problem of long-term profitability.” Additionally, Pierre Ferragu of Bernstein Research stated that he was not certain that management would be able to provide a successful turnaround by mid-2015, as the company was seeking to do.
Ferragu alluded to Alcatel-Lucent’s “operational challenges” (with regard to management) and suggested that in order to recover profitability, much work will be needed. In the third-quarter, the company reported that it had made a net loss of $146 million, or 7 cents a share; this contrasts greatly with the prior-year net income which stood at $194 million, or 7 cents a share.
The market had not expected such a huge package of loans, and rumors circulated that a deal would only be made next year; it has therefore come as somewhat of a surprise. With maturities of three and a half to six years, the actual borrower for the financing is Alcatel-Lucent’s U.S. subsidiary. The deal will likely implement the intellectual property portfolio, including Bell Lab assets patents.
The Federal Reserve has taken great measures to ensure that money is accessible, and this deal demonstrates another example of the availability of affordable financing in the bond markets. On Thursday, shares of Alcatel-Lucent rose by 10 percent to $1.21 ahead of Friday’s open, and the stock closed 30 percent down on the year. Despite this rise, shares are still down 85 percent from 2007. (CY) Link
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