Alcatel-Lucent SA (ALU), the French phone- equipment maker trading near a 23-year low, is considering asset sales to bolster its finances after posting a loss and consuming more cash as demand for its gear wanes.
The stock fell the most in three months after the company reported a second straight quarterly loss and said it burned through 360 million euros ($464 million) of cash. A few assets could be targeted for disposal as Alcatel-Lucent explores ways to strengthen its balance sheet, its executives said today.
Chief Executive Officer Ben Verwaayen, in his fifth year in the job, is struggling to turn Alcatel-Lucent around as European phone companies spend less and Asian rivals add pressure. With more than 2 billion euros of debt due over the next three years, the former BT Group Plc CEO is pressed to do more as thousands of job cuts have failed to stem losses.
“Stay away from this debt-troubled name,” Alexander Peterc, an analyst at Exane BNP Paribas in London, said in a note. The company’s finances could deteriorate if asset sales end up diminishing cash flows, and appeasing debtholders may mean diluting shareholders, Peterc said.
Alcatel-Lucent fell as much as 10 percent -- the biggest drop since the company said July 17 that it won’t meet its profit-margin goal this year -- and slid 6.9 percent to 77 cents at 12:38 p.m. Paris time. The shares had lost 57 percent in the past 12 months through yesterday and reached their lowest price since at least 1989 on Oct. 11.
Alcatel-Lucent is France’s most shorted stock, based on data compiled by financial-information provider Markit, showing a growing number of investors are predicting further declines.
The shares are worth less than a third of their value from when Verwaayen took over as CEO in September 2008. Former chiefs Pat Russo and Serge Tchuruk, who oversaw the merger of Alcatel SA and Lucent Technologies Inc. in 2006, handed Verwaayen an unprofitable company with a high cost base. Alcatel’s cash has since diminished by an average of 700 million euros per year.
“We are looking at all the options to strengthen our balance sheet,” Chief Financial Officer Paul Tufano said on a conference call. “We have assets we can dispose of that would bring in a good amount of liquidity.”
The company now targets a positive net cash position at year-end, after slumping to a net debt of 84 million euros at the end of September, meaning it had more debt than cash. Alcatel will have to pay back back 837 million euros in 2013, 462 million euros the following year, and 1 billion euros in 2015, its debt maturities show.
Standard and Poor’s said Aug. 18 it may reduce the company’s debt ratings further into junk, citing potentially worsening liquidity amid waning cash. Alcatel-Lucent’s debt is also rated junk by Moody’s Investors Service.
“The company recognizes implicitly looming liquidity problems,” Pierre Ferragu, an analyst at Sanford C. Bernstein Ltd. in London who recommends staying away from the stock, said today in a note. Alcatel could look at selling some its intellectual property, Ferragu said.
Verwaayen’s efforts to shore up cash flow so far included a licensing agreement announced in February, which the company expects will deliver several hundred million euros from its 29,000 patents. The company has yet to disclose any revenue from the contract.
Verwaayen has made his mark on Alcatel in the past by selling assets. He sold a stake in the aerospace manufacturer Thales SA in 2009 and last year agreed to sell the Genesys call- center software unit to Permira Advisers LLP for $1.5 billion.
As the company looks at further assets to sell, its enterprise, strategic industries and submarine businesses have frequently been cited by analysts as targets. These businesses were placed under Tufano’s management in September, separately from Alcatel-Lucent’s other network operations.
The third-quarter net loss was 146 million euros, compared with a profit of 194 million euros a year earlier. Analysts had forecast a loss of 149.1 million euros, the average of estimates compiled by Bloomberg. Sales declined 2.8 percent to 3.6 billion euros, compared with the 3.55 billion euros analysts projected.
To save money, Verwaayen is cutting 5,500 jobs worldwide, including about 15 percent of the company’s workforce in France, as part of a 1.25 billion-euro savings program. Alcatel-Lucent said it has achieved more than 450 million euros of savings so far as part of the plan.
“We’ve done a good job on costs -- we’ve promised ourselves that the cost structure of the company will be fundamentally changed and we’re in the process of doing that,” Verwaayen said on today’s call. “The speed of our cost cutting will also have an impact on our cash position.”
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