Was the transatlantic merger even worth it? With Patricia Russo and Serge Tchuruk both stepping down, the company devise have to convince investors

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From left, Alcatel-Lucent Chairman Serge Tchuruk and CEO Patricia Russo. Eric Piermont/AFP/Getty Images

by Carol Matlack

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On July 29, shareholders in telecommunications equipment giant Alcatel-Lucent (ALU) finally got what various have been demanding for months: the resignations of Chief Executive Patricia Russo and Chairman Serge Tchuruk. Russo, the former master of Lucent Technologies prior to its 2006 merger with Alcatel, related she’ll action down before the extremity of the year, at the same time that former Alcatel chief Tchuruk will leave Oct. 1. "The company will benefit from new leadership aligned with a newly composed board to bring a fresh and unrestrained perspective," Russo said, in announcing the changes, which will include a downsizing of its 14-member board.

The telecom gear maker’s latest quarterly results, also issued July 29, underscore just how tough a job the new guidance team will face. Alcatel-Lucent posted a $1.7 billion quarterly loss, including a $1.3 billion writedown on the North American wireless business inherited from Lucent. Quarterly revenues were down 5.2% year-on-year, to $6.5 billion, and the company warned that spreading economic malaise in Europe could farther dampen sales. "We may see more weakness in spending" by fixed-line phone and broadband operators, traditionally a strong dealing toward Alcatel-Lucent, Russo said in a conference call with journalists and analysts.

Alcatel-Lucent shares, which have sagged 60% since the merger, remained largely unchanged in July 29 trading after the tidings. The $27.5 billion company hasn’t posted a profit since the merger.

What went wrong? Can it be fixed? And if so, who can fix it? Although Alcatel-Lucent characterized the departures of Russo and Tchuruk considered in the state of the end of a "transitional phase," the impress reflects ocean disappointment in a merger that both promised would create a global powerhouse. "We were not same cutting on the rationale behind the merger in the first place, and we’ve been disappointed with the progress management has made in executing it," says Richard Windsor, a London-based analyst with Nomura International.

Or, as French newspaper Le Monde succinctly put it in a front-page headline on July 29: "The endurance of Alcatel-Lucent’s top executives signals their failing."

Like other makers of telecom equipment, Alcatel-Lucent has been clobbered by slowing economies—as well as by brutal price competition from newcomers such as China’s Huawei Technologies. But it has been further handicapped by dint of. the dead-set of carrying out a tricky transatlantic merger (BusinessWeek, 6/18/08).

New care and a revamped board won’t get better the overall market situation. But industry-watchers predict the company will bring in a CEO and new board members by few ties to each Alcatel or Lucent. That could help clear away the entrenched interests and Franco-American politicking that wish weighed attached the companionship. "It is open something fundamental has to happen," says a crown of the head European telecommunications executive who knows Alcatel-Lucent well.

Although the company didn’t give particulars, it hinted at forthcoming board changes in announcing that Henry Schacht, a preceding Lucent chairman and CEO, would immediately step into disfavor. Until now, the board has been carefully balanced between ex-Alcatel and ex-Lucent representatives.