Amid buyer’s remorse in France and pending regulatory action in the United States, the merger of Paris-based telecommunications equipment supplier Alcatel and its U.S. rival Lucent Technologies will be voted on by shareholders of both companies Thursday.

Approval is expected on both sides of the Atlantic, but lost in the shuffle is the expected shakeout among hundreds of equipment suppliers that make a living supplying either Alcatel or Lucent with products or services.

Lucent, in particular, has been quite adept at filling its blank spots with products from the extensive telecom ecosystem of large and small partners to meet the needs of its customer base. And as with any merger of rivals, there will be redundancies.

Buyer’s Remorse

Analysts expect Alcatel’s shareholders to sign off on the $11-billion deal despite significant unease and apprehension that the French giant may have paid too much for Lucent (see Alcatel, Lucent Deal in Jeopardy).

That buyer’s remorse may have been heightened somewhat by Wednesday’s announcement from Lucent that the Securities and Exchange Commission recommended enforcement action related to an ongoing investigation of its Chinese operations.

In 2004, Lucent reported possible violations of the Foreign Corrupt Practices Act. Since the investigation predated the decision by the two companies to merge, Lucent’s announcement is not expected to have any significant effect on Thursday’s vote in France.

“That situation must have been fully vetted so it is unlikely to have any effect on the merger,” said Joe Nordgaard, director of wireless consulting firm Spectral Advantage. “There may be shareholder lawsuits and such, but I don’t think there is any back-out clause for an investigation that began some two years ago.”

Shares of Lucent fell $0.03 to $2.24 in recent trading, while Alcatel shares dropped $0.27 to $11.74.

Relationships in Jeopardy

The merger of two large suppliers will jeopardize established relationships between startups that partner with either Alcatel or Lucent.

“It will also depend on where the relationship is,” said Ahmet Ozalp, a principal with Atlas Venture Partners. “Projects tend to get put on hold during mergers. The people the startups are working with could be downsized.

“In a merger environment people worry about their jobs rather than their relationship with a startup,” he added.

Startups are being hit with the double whammy of consolidation, both among carriers and among top-tier suppliers. In a consolidating market, the customers get larger and hopefully financially stronger, but there are fewer targets for startups, further intensifying competition.

“There will be opportunities created through consolidation at the levels of an Alcatel and Lucent, but among smaller suppliers there will be some adjustment that will be necessary,” Mr. Nordgaard said.

Contact the writer:CMedford@RedHerring.com

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