Alcatel Seeks $2.7 Billion After Stock Surges Under Combes

Alcatel-Lucent SA (ALU) is seeking to raise $2.7 billion through a combination of new shares and debt, taking advantage of a stock that has almost tripled since Chief Executive Officer Michel Combes took over to finance the network-equipment maker’s overhaul.

The plan includes the sale of 955 million euros ($1.3 billion) in new stock at 2.10 euros apiece. That’s 29 percent less than the Nov. 1 close. Alcatel-Lucent is selling $750 million in high-yield bonds and getting a 500 million-euro revolving credit facility, the Paris-based company said today.

With proof that Alcatel-Lucent is regaining confidence from lenders and the stock market, Combes, who became CEO in April, has a stronger hand to play during negotiations with potential buyers of company assets. Fresh capital would also allow the network supplier to compete more aggressively for contracts with Ericsson AB (ERICB) and Chinese rivals such as Huawei Technologies Co.

“In the past few months we have gotten renewed confidence from customers and the market,” Combes said during a conference call. “Executing on the financial part of our plan will allow us to refocus our energy on asset disposals.”

The stock closed 3.8 percent lower at 2.86 euros in Paris, after falling as much as 9.3 percent for its biggest intraday drop in a year. It has still more than doubled this year, giving Alcatel-Lucent a market value of 6.68 billion euros. Shareholders may subscribe to the new shares from Nov. 19 to Nov. 29.

Photographer: Peter Allan via Bloomberg

Michel Combes, chief executive officer of Alcatel-Lucent SA, gestures in this undated handout photo released to the media on July 30, 2013. Close

Michel Combes, chief executive officer of Alcatel-Lucent SA, gestures in this undated... Read More

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Photographer: Peter Allan via Bloomberg

Michel Combes, chief executive officer of Alcatel-Lucent SA, gestures in this undated handout photo released to the media on July 30, 2013.

Keeping Promise

Combes, a former Vodafone Group Plc (VOD) executive, prompted a 19 percent jump in the stock on Oct. 31 -- the biggest increase in five years -- by reporting earnings that beat estimates for a second straight quarter since taking over from Ben Verwaayen.

Net debt will be close to zero when the transactions unveiled today are completed, compared with 1 billion euros in September, Chief Financial Officer Jean Raby said. Alcatel-Lucent also plans to regain full control of its portfolio of patents, which Verwaayen had pledged as collateral in exchange for loans from Goldman Sachs Group Inc. and Credit Suisse Group AG. (CSGN)

Alcatel-Lucent’s bonds maturing in January 2016 rose 1.5 basis points to 113.8 basis points at 5:14 p.m. in London, the highest level since the securities were issued in November 2010, according to data compiled by Bloomberg. The company’s debt is rated junk by Moody’s Investors Service and Standard & Poor’s.

Profit Quest

The cost of insuring Alcatel-Lucent loans as measured by credit-default swaps fell 48 basis points to 296, the lowest since November 2007, the data showed. The contracts are down from about 920 basis points at the start of the year.

Merrill Lynch & Co., Credit Agricole SA (ACA) and Deutsche Bank AG (DBK) are among banks working on the financing. Simon Poulter, a Paris-based spokesman for Alcatel-Lucent, declined to detail how the roles are split among the banks on the equity, bonds and loan components.

The quest to make Alcatel-Lucent profitable started when the company was created through the 2006 merger of Alcatel SA and Lucent Technologies. CEO changes, job cuts and restructuring have failed for almost seven years, as the company tallied more than $10 billion in losses. To see a turnaround through, Combes will have to execute on plans to sell 1 billion euros worth of assets in the coming months.

Combes faces a tough market, with equipment prices under pressure and European phone companies curbing spending. Finnish rival Nokia Solutions and Networks reported a 26 percent slide in third-quarter revenue. Ericsson, the largest maker of wireless networks, missed profit-margin estimates on stiffer competition with Huawei and ZTE Corp. (000063)

Nokia Oyj (NOK1V)’s sale of its handset business and some patents will hand the company 5.44 billion euros in cash, making the Espoo, Finland-based company a potential buyer of Alcatel-Lucent assets. To catch up to Ericsson and Huawei, Nokia is considering a tie-up with Alcatel-Lucent’s wireless-equipment unit, a person familiar with the plan said in September.

To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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