Alcatel-Lucent Plans Submarine-Cable IPO as Sales Wane

Alcatel-Lucent SA plans to sell part of its submarine-cables unit in an initial public offering, adding to Chief Executive Officer Michel Combes’s efforts to turn around the French network-equipment maker.

The IPO, targeted for the first half of 2015, will give the business means to seek acquisitions and expand outside telecommunications into industries such as oil and gas, Alcatel-Lucent said today. Second-quarter sales fell about 5 percent, trailing analysts’ estimates and sending the stock down.

Combes, trying to revive Alcatel-Lucent after the 2006 merger of Alcatel SA and Lucent Technologies Inc. led to years of losses, has cut jobs and sold assets as competition from Ericsson AB and Huawei Technologies Co. weighed on Alcatel’s growth. Alcatel-Lucent, based in Paris, sought last year for a buyer for the submarine unit, which Kepler Capital Markets had valued at as much as 800 million euros.

“Alcatel-Lucent’s turnaround is on track,” Combes said on a conference call. “This fourth consecutive quarter of consistent execution has allowed us to close the first chapter of our transformation plan.”

The shares fell as much as 9.4 percent in Paris after reversing earlier gains. The stock had risen about 7 percent in the past two weeks, as competitors Ericsson, the world’s biggest wireless-equipment vendor, and Nokia Oyj projected a recovery in demand and beat estimates in the second quarter.

Asset Disposals

The submarine unit, which includes Alcatel-Lucent’s last French production site in Calais, north of Paris, manufactures cables and operates a fleet of vessels that lays the connections. Alcatel-Lucent has installed more than 500,000 kilometers (310,000 miles) of submarine cables and has been operating from Calais for more than 100 years, according to the company.

Alcatel-Lucent said it will retain a majority stake in the business. The IPO will make up a “small part” of the company’s forecast for 1 billion euros of asset disposals by the end of 2015, Combes said.

Sales fell to 3.28 billion euros ($4.4 billion). Analysts had predicted 3.3 billion euros. The net loss shrank to 298 million euros from 885 million euros a year earlier and free cash flow was negative 205 million euros.

As Combes seeks to cut expenses by 1 billion euros by the end 2015, rivals are also reviewing their strategies. Nokia now focuses almost exclusively on network equipment after selling its mobile-phone unit to Microsoft Corp. Ericsson, the biggest maker of wireless networks, is expanding in services. Huawei said last month it plans to double its research and development team in Europe as it vies for orders in the region.

‘Softer’ Business

Second-quarter reports by Nokia and Ericsson beat estimates, with the companies projecting a recovery in carrier spending. Ericsson’s sales and profit margins were helped by contracts in China and the Middle East, also fueling expectations for a strong report from Alcatel-Lucent.

“Much of the business looked softer, with the exception of wireless,” George C. Notter, an analyst at Jefferies LLC, said in a note. “The shares already price in a very bullish outcome from the company’s cost-reduction efforts.”

Alcatel’s shares fell 6 percent to 2.67 euros at 12:16 p.m. The stock has almost tripled since Combes, a former Vodafone Group Plc executive, took the CEO job in April 2013.

“There was a dichotomy,” Eric Beaudet, an analyst at Natixis, said in a note. While part of Alcatel’s earnings benefited from the growth in new-generation mobile technology in countries like China and the U.S., the rest was “disappointing,” Beaudet said.