Recently, Alcatel-Lucent (ALU) announced the divestment of its Enterprise division to China Huaxin Post & Telecommunication Economy Development Centre (China Huaxin) for €202 million. Following the sale, Alcatel-Lucent intends to focus more on its core business areas such as enterprise communications and networking where it already enjoys a leading position. However, the news failed to cheer investors as shares fell 1.4% on Oct 2 following the announcement.
In Feb 2014, China Huaxin had made a binding offer to buy 85% of Alcatel’s Enterprise division. Notably, following the closure of the deal, a new company will be formed.
While the deal will help Alcatel explore new opportunities in potential, high-growth countries, vertical solutions and cloud services, China Huaxin will leverage on the former’s extensive asset portfolio and global presence.
Alcatel intends to become a leading player in the next-generation enterprise communications arena, thereby initiating a novel shift from a pure technology-centric model to an outcome-based delivery one. The new model will be capable of providing quantifiable benefits on the basis of cost for its partners and customers.
Notably, Alcatel will hold a minority stake (15%) in the newly incorporated holding company, to be headquartered in France. The new entity will have operations across 80 countries with over 2,700 employees.
The divestment is part of the turnaround plans initiated by Michael Combes in Jun 2013 which are meant for improving sales and reducing costs by €1 billion by the end of Jun 2015. Meanwhile, the Enterprise segment sale marks the second divestment by the company following its announcement of “The Shift Plan”. The first divestiture was of Alcatel’s LGS Innovations LLC division to Chicago's Madison Dearborn Partners LLC for as much as $200 million.
Alcatel-Lucent currently holds a Zacks Rank #3 (Hold). Some better-ranked companies in the communications components sector include SeaChange International Inc. (SEAC), Aerohive Networks Inc. (HIVE) and Arista Networks, Inc. (ANET). While SeaChange sports a Zacks Rank #1 (Strong Buy), Aerohive and Arista carry a Zacks Rank #2 (Buy).
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