Alcatel-Lucent in Talks to Sell Phone Unit to China Huaxin
Network-Equipment Maker Swung to Small Profit in Fourth Quarter
PARIS— Alcatel-Lucent SA ALU.FR +12.36% is in exclusive talks to sell its enterprise phone unit to investment company China Huaxin, the network-equipment maker said Thursday after it swung to a small profit in the fourth quarter.
The Franco-American maker of cellular networks and Internet-backbone gear said China Huaxin made a binding offer to buy a majority stake in the unit for an enterprise value of €268 million ($362 million). In the deal under consideration, Alcatel would retain a 15% stake in the unit, which makes phone systems and other equipment for businesses.
Alcatel said it expects to sign the deal by the second quarter and aims to close it in the third quarter, pending regulatory approval. China Huaxin is Alcatel's minority partner for Alcatel-Lucent Shanghai Bell, its unit in China, the company said.
If sealed, the sale would be the second as part of new Chief Executive Michel Combes's Shift plan, which aims to refocus the business on a handful of profitable areas—in part through at least €1 billion in asset sales. In December, the company sealed a deal to sell its U.S. government-contracting subsidiary LGS Innovations to an investor group led by U.S.-based Madison Dearborn Partners in a deal that could be worth as much as $200 million.
"Good implementation of the Shift Plan is already deeply altering the company," Mr. Combes said on a call with journalists.
For the fourth quarter, Alcatel reported a net profit of €134 million, or 5 cents per share, compared with a net loss of €1.56 billion or 69 cents per share a year earlier, when the company saddled itself with more than a billion in impairment and restructuring charges.
The company missed analysts' expectations for a big increase in adjusted operating profit because of higher-than-expected cost cuts. That figure, which excludes various charges, including costs associated with the 2006 merger between France's Alcatel and U.S.-based Lucent Technologies, came in at €307 million, compared with €115 million a year earlier, driven by rising gross margins and fixed costs cuts.
Free cash flow rose to €363 million, compared with €353 million a year earlier.
Revenue in the third quarter fell 4.1% to €3.93 billion, though was flat at constant exchange rates, the company says.
North America—home to Alcatel's largest clients, AT&T Inc. T -1.14% and Verizon Communications Inc. VZ -0.28% —was a source of surprise growth, up 1.9% on year in constant currency terms, after declines in the region for competitor Ericsson. The company's struggling wireless segment also saw an increase of 15% in revenue, adjusted for currency fluctuations.
The results help bolster early progress for Mr. Combes, whose predecessor stepped down almost exactly a year ago amid hemorrhage of red ink. At the end of last year, the company was also reinstated in Paris's benchmark CAC-40 index, reversing a deletion a year earlier as shares swooned.
In the last year, Alcatel shares have risen more than 130% and closed Wednesday in Paris at €3.04.
China Huaxin Post & Telecommunication Economy Development Center is a state-owned company with investments in several China-based tech companies, including Alcatel-Lucent Shanghai Bell, according to the company's website. It is also developing its own international business in telecommunications, enterprise networking and optical communications.