Alcatel-Lucent CEO Plans to Leave When Successor Is Found

Alcatel-Lucent SA Chief Executive Officer Ben Verwaayen will step down after 4 1/2 years of efforts to turn around the phone-equipment maker failed to stem a slump in cash reserves and withstand global competition.

Verwaayen, whose contract is due to be renewed in May, has decided not to seek an extension, the Paris-based company said in a statement today. The 60-year-old will remain in place as the board considers internal and external candidates, it said.

Alcatel-Lucent shares fell 4.9 percent today in Paris trading. Verwaayen’s resignation follows a 70 percent slump in the stock under his watch amid sliding revenue and losses in market share to Chinese rivals. Just as Nokia Siemens Networks’ job cuts have begun to boost profitability and Ericsson AB is winning contracts in North America, Alcatel-Lucent said today a

1.4 billion-euro ($1.9 billion) asset-impairment charge sunk the company into a fourth-quarter quarter loss.

“After five years in the business, you have to reflect,” Verwaayen said today during a conference call. “The task ahead is focused on execution, execution, execution. Maybe that’s not my natural strength, and maybe it’s good for the company to get a fresh perspective.”

The former BT Group Plc CEO followed in the footsteps of predecessors Patricia Russo and Serge Tchuruk, who oversaw the 2006 merger of Alcatel SA and Lucent Technologies Inc. and were never able to translate billions of dollars of research to develop equipment used in the newest generation of wireless networks into profits.

Successor Search

Since the deal, Alcatel-Lucent has accumulated about 10 billion euros in net losses, while its cash reserve has diminished by an average of 700 million euros a year.

Alcatel-Lucent’s board of directors, led by Chairman Philippe Camus, has considered replacing Verwaayen for about six months and has been sounding out potential successors for the CEO role throughout that period, people familiar with the matter said.

The board has hired executive recruiting firm Russell Reynolds Associates to help with the search, Verwaayen said today. There’s no further changes expected in the management team, he said.

Disagreements between Verwaayen and the board hit a high point late last year when the CEO pledged assets and patents to get a financing package, buying more time for a turnaround, one of the people said, declining to be named because the deliberations are private.

Spokesman Simon Poulter declined to comment today on the CEO search process.

European Challenges

The stock lost 6.3 cents to close at 1.23 euros in Paris today, after jumping as much as 11 percent earlier. The company has a market value of 2.9 billion euros.

Verwaayen’s efforts to shore up cash included a licensing agreement last year to turn some of its 30,000 patents into revenue, ending some unprofitable contracts, a plan to eliminate 5,500 positions as well as smaller asset sales.

Still, heavy regulation in the telecommunications industry in Europe coupled with the region’s debt crisis has made carriers less willing to increase spending on equipment. Alcatel-Lucent now generates almost 40 percent of its revenue from the U.S., counting on contracts from carriers such as AT&T Inc. In North America, Alcatel-Lucent also competes with Cisco Systems Inc. and Juniper Networks Inc. in Internet routing and switching gear.

“Five years ago in the U.S., you knew that leaving L.A. meant going into the desert, meanwhile Europe was ahead,” Verwaayen said in an interview in May last year.

The situation has reversed now, he said.

‘Slightly Better’

“China will be a better market, the U.S. is staying very strong and Europe will still be a question mark in 2013,” Verwaayen said today. “Overall it will be a slightly better year than 2012.”

Alcatel-Lucent said today it won’t pay a dividend for 2012. The company generated positive free cash flow of 355 million euros in the fourth quarter as its net loss reached 1.37 billion euros, or 60 cents per share.

Ericsson, the world’s largest maker of wireless networks, last week beat sales estimates by benefiting from a rise in spending by North American carriers.

About 1.5 billion euros of debt due over the next three years and a junk rating have hampered Verwaayen’s turnaround efforts as well. Alcatel-Lucent last month completed a 2 billion-euro loan underwritten by Credit Suisse Group AG and Goldman Sachs Group Inc. to win time for an overhaul and asset sales.

‘Best Valuation’

“This isn’t a fire sale,” Chief Financial Officer Paul Tufano said today in an interview. “We’re going for the best valuation,” he said. Tufano declined to say whether there were discussions or interest from potential buyers and said he sees a deadline of 18 to 24 months for the asset sales.

A unit that equips businesses is among those considered for disposal, along with the undersea fiber-optic cables division, which has attracted interest from potential buyers, people familiar with the matter said last month.

While the loan agreement helped boost the stock, Alcatel-Lucent has fallen almost 90 percent since the 2006 merger. One of the original members of the CAC 40, Alcatel-Lucent dropped out of France’s leading stock index in December after 25 years.

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