We have been following Alcatel-Lucent (ALU) and its predecessor Lucent Technologies since the late 1990s. We first heard of Lucent in Charles Carlson’s book No-Load Stocks, as Lucent had offered a direct stock purchase plan to investors. Lucent was a beneficiary of the telecom and technology boom-and-bust of the late 1990s. Lucent went from being a $250B telecom equipment darling at the dawn of 2000 to racking up four straight fiscal years of losses from 2000 to 2003. After generating a $2B profit in 2004, Lucent only generated $1.6B in profits from 2005 to 2006, before accepting a $13.4B buyout from Alcatel to form Alcatel-Lucent. Patricia Russo was in charge of Lucent when it bounced off its losses to regain profitability and she was tapped to run Alcatel-Lucent, with Alcatel’s CEO Serge Tchuruk retiring as CEO and serving as Non-Executive Chairman. Russo and Tchuruk certainly did their best when running the company from 2006 to 2008. Unfortunately, their best wasn’t good enough, as Alcatel-Lucent racked up $9B worth of losses under their leadership in 2006-2008.

Our Evaluation of the Alcatel-Lucent Merger Deal

The Alcatel-Lucent deal officially qualified as a “Deal From Hell” in that Alcatel-Lucent had to write down all the goodwill and intangibles associated with the deal – both Tchuruk and Russo were put out to grass in September 2008 and Alcatel-Lucent’s market cap of $2.83B as of August 17, 2012, is 20% of what it paid to acquire Lucent in 2006.

Alcatel then picked Ben Verwaayen off the waiver wire and named him as its next CEO on September 2, 2008. As ALU’s CEO, Verwaayen had at least minimized operating losses at Alcatel-Lucent and sold off non-core assets. However, Alcatel-Lucent is still seeing its cash and liquid asset balances steadily erode in order to support operations.

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