Alcatel Undersea Cable Division Said to Attract Investors

Alcatel-Lucent SA, the French phone-equipment maker reorganizing to stem losses, is looking to sell its submarine-cable business by next quarter after attracting interest from potential buyers, according to people familiar with the matter.

Investment funds Permira Advisers LLP and PAI Partners SAS, as well as French sovereign fund FSI, are weighing bids, said the people, asking not to be identified because the discussions are private. France Telecom SA said it makes “industrial sense” to own the unit, which Kepler Capital Markets says may fetch as much as 800 million euros ($1.1 billion).

Chief Executive Officer Ben Verwaayen reached a $2.1 billion financing deal last month with Credit Suisse Group AG and Goldman Sachs Group Inc. in exchange for putting the company’s patents and some assets up as collateral. Alcatel needs additional cash to shore up its finances to help repay $3 billion in bonds and loans due by 2015.

“Alcatel has more than 40 percent market share in submarine cables, in a highly consolidated market,” said Sebastien Sztabowicz, a Paris-based analyst at Kepler Capital Markets. “The unit is very profitable, with double-digit margins -- that’s well above what the company is getting out of its business overall.”

Enterprise Unit

Alcatel rose as much as 1.9 percent today in Paris, adding to yesterday’s 3.3 percent gain after Bloomberg reported the sale discussions. The shares climbed as much as 5.6 percent in U.S. trading yesterday.

Credit Agricole SA is advising Alcatel Lucent on a sale of the cable business, said two of the people. Centerview Partners Holdings LLC, a New York-based investment bank, was hired to conduct a strategic review on other possible asset sales, another person with knowledge of the matter said.

Another Alcatel unit, which sells phone equipment to businesses, is also among assets the company may sell, with talks at an early stage, two people familiar with the matter said. That business is worth 200 million euros according to Kepler’s Sztabowicz, while Natixis’s Eric Beaudet values the division at 400 million euros.

Representatives for Alcatel, Permira, PAI, Credit Agricole and Centerview declined to comment on the asset-sale plans.

Portugal, Nigeria

The submarine unit, which includes Alcatel’s last French production site in Calais, north of Paris, manufactures cables and operates a fleet of vessels that lays the connections. Alcatel has installed more than 500,000 kilometers (311,000 miles) of submarine cables and has been operating from Calais for more than 100 years, according to the company.

Submarine cables are part of Alcatel’s optics-equipment business. Sales at the optics unit dropped 18 percent in the third quarter to 480 million euros, outstripping the 2.8 percent decline in Alcatel’s revenue.

CEO Verwaayen has said business in submarine cables will pick up this year after a low point in 2012. Alcatel in December signed contracts to upgrade a 4,400-kilometer cable between Florida and Colombia and to maintain a cable connecting Portugal to Nigeria.

France Telecom, the phone company that also owns a business which ships and installs undersea cables, is interested in buying Alcatel’s submarine business, its CEO Stephane Richard told reporters yesterday. “We’ve expressed our interest for this business, theoretically speaking, because it could make industrial sense, but for now things haven’t moved any further than that,” he said.

State Scrutiny

Any reorganization of Alcatel and decisions to sell assets will draw scrutiny from unions and the government, which owns a

3.6 percent stake in the company.

Fleur Pellerin, France’s Digital Technology Minister, said in an interview with Les Echos published yesterday that Alcatel’s submarine cable unit is a “strategic asset” and should remain in French hands. The unit is the type of asset in which the FSI could invest together with other investors, Pellerin was quoted as saying.

France is unwilling to inject money directly into Alcatel through a loan or capital increase, people familiar with the matter said. A French government official declined to comment.

Overhaul Plans

Asset sales are part of CEO Verwaayen’s broader overhaul plans, aimed at stemming losses and turning around Alcatel by cutting costs, ending some unprofitable contracts and generating more revenue from patents. Unit disposals would also help the CEO strengthen the balance sheet of a company that has consumed 700 million euros of cash on average annually since the 2006 merger of Alcatel SA and Lucent Technologies.

Separately, lenders have over-subscribed to the 1.6 billion-euro syndicated loan being underwritten by Credit Suisse and Goldman Sachs and arrangers are considering cutting the interest margin or increasing the size of the financing due to demand, said two people with knowledge of the matter.

Alcatel last month exited the CAC 40, France’s leading stock-market index, after 25 years. The company’s market value, at about $4 billion, compared with almost $35 billion at Ericsson AB. Alcatel probably had 14.5 billion euros in 2012 sales, a decline of 7.6 percent from a year earlier, the average of analyst estimates compiled by Bloomberg showed.

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