Alcatel Lucent SA (NYSE:ALU) (EPA:ALU) (BIT:ALU) shares surged today after the company’s newly appointed CEO unveiled a cost cutting and asset sale package. Alcatel Lucent chief Michel Combes plans to raise as much as 2 billion euros ($2.7 billion) by the end of 2015. Combes said he will rework the company’s balance sheet and focus on its core businesses to make Alcatel Lucent cash flow positive by 2015.
Michel Combes is a former Vodafone Group PLC (NASDAQ:VOD) (LON:VOD) senior executive whom the French-American company hired in February 2012. Alcatel Lucent SA (NYSE:ALU) (EPA:ALU) (BIT:ALU) said Wednesday that the company will refocus on its Internet Protocol routing business, and combine it with others like optical networks. Combes said he expects the IP routing business to generate at least 50 percent of Alcatel Lucent’s total revenues in 2015.
Alcatel Lucent Under Political Radar
Talking about the telecom equipment maker’s balance sheet, Combes said that the company will raise 2 billion euros in new debt to repay the previous 2 billion euros in debts that it agreed to borrow in January. Then the company will cut costs, sell assets and trim workforce to repay those 2 billion euros. January’s borrowings, which were secured by patents and other assets, came under the political radar. French politicians argued that it risks losing important French intellectual property. That’s why there is an urgency to pay off those debts, says Kevin J. O’Brien of the New York Times.
Alcatel Lucent SA (NYSE:ALU) (EPA:ALU) (BIT:ALU) was created in 2006 after the merger of American company Lucent Technologies and Alcatel of France. The merger hasn’t gone well as Alcatel Lucent is struggling to restore profitability and boost sales. In fiscal year 2012, the company incurred a loss of 1.4 billion euros. Alcatel Lucent continues to face stiff competition from Ericsson (NASDAQ:ERIC), Nokia Siemens Networks and Huawei Technology Co. Ltd. (SHE:002502).
Michel Combes said he plans to raise 1 billion euros by selling assets and another 1 billion euros through cost cutting measures by 2015. However, he didn’t disclose which businesses he plans to sell and where he plans to cut expenses. As of December 2012, the company has about 72,000 employees worldwide.
Alcatel Lucent Investors Optimistic
Mr. Combes has generated a new wave of optimism among investors since he joined the company on April 1. Alcatel Lucent SA (NYSE:ALU) (EPA:ALU) (BIT:ALU) shares have risen 34 percent since April 1, as investors remain optimistic about his plan of action despite the company’s weak financial position.
Deutsche Bank said in a research report that it sees Mr. Combes’ turnaround plan as credible and radical. Deutsche Bank analyst Kai Korschelt said that the cost cutting measures will help the company achieve its margin targets. Though Alcatel Lucent SA (NYSE:ALU) (EPA:ALU) (BIT:ALU) didn’t disclose which assets it wants to sell, Deutsche Bank AG (NYSE:DB) (FRA:DBK)ETR:DBK) said that the company is most likely to sell its Submarine Optics and Enterprise businesses. Deutsche Bank has a Buy rating on the stock.
Alcatel Lucent SA (NYSE:ALU) (EPA:ALU) (BIT:ALU) shares were up 3.74 percent to $1.94 at 9:43 AM EDT.