WASHINGTON-Alcatel SA and Lucent Technologies Inc. have been forced to defend their proposed trans-Atlantic merger after a key lawmaker raised security concerns about the deal in a letter to President Bush.
“I have several grave concerns about the potential merger of French-owned Alcatel and American-owned Lucent Technologies,” said House Armed Services Committee Chairman Duncan Hunter (R-Calif.) in an April 28 letter to Bush. “These concerns arise in large part because Lucent Technologies and Bell Labs, a critical component of the parent company Lucent Technologies, conduct a significant amount of highly classified work for the United States government, including the Department of Defense. I am skeptical whether the current CFIUS [Committee on Foreign Investment in the United States] process could provide adequate, verifiable assurances that such sensitive work will be protected.”
Lucent and Alcatel immediately responded.
“We appreciate Chairman Hunter’s concerns, and look forward to working with him and we believe we have put in place an approach that will protect sensitive U.S. technologies,” said Regine Coqueran, an Alcatel spokeswoman, in a statement. “Both Lucent and Alcatel have already committed to form a separate, independent U.S. subsidiary to manage sensitive business with U.S. government agencies. This subsidiary will be separately managed by a board composed of three distinguished U.S. citizens acceptable to the U.S. government. Former U.S. Defense Secretary Bill Perry, former Central Intelligence Agency director James Woolsey, and former National Security Agency director Kenneth Minihan have agreed to serve on this board. There are substantial precedents for the approach we intend to pursue, and we are confident that we will be able through the ongoing review process to address the chairman’s concerns.”
Hunter is believed to be the first lawmaker to voice problems with Alcatel’s proposed $14.1 billion takeover of Lucent. Foreign acquisitions and the review process by CFIUS-an inter-agency government group led by the Treasury Department-have become flashpoints ever since the now-defunct Dubai Ports deal. The deal would have given Dubai Ports World-a state-owned firm in the United Arab Emirates-ownership of six U.S. ports.
As a result of the of the Dubai Ports flare-up, some lawmakers want to reform CFIUS.
Hunter has offered a bill to require majority U.S. ownership of critical infrastructure deemed essential to national security and a five-year divestiture of foreign-owned critical infrastructure. T-Mobile USA Inc., the No. 4 mobile phone operator in the United States, is owned by German telecom giant Deutsche Telekom AG.
Last week, a new report said the federal government is not doing enough to protect U.S. critical infrastructure.
“The White House and Congress wrongly presume that market mechanisms on their own will provide sufficient incentives to provide the necessary level of security in the absence of decisive federal leadership and involvement. Security and safety are public goods whose provision is a core responsibility of government at all levels,” stated a report by the Council on Foreign Relations.
Still, it does not appear the proposed Alcatel-Lucent merger will fall victim to the kind of uproar on Capitol Hill that accompanied the failed Dubai Ports World deal earlier this year. Indeed, Bush recently signed off on a separate CFIUS-approved transaction in which a different Dubai company is buying a British engineering firm with U.S. plants that supply gear to Pentagon contractors.
Sen. Charles Schumer (D-N.Y.), who was a vocal critic of the Dubai Ports World deal, does not oppose the latest Dubai deal or the proposed Alcatel-Lucent merger.
Schumer was quoted as saying: “It’s obviously different from Dubai Ports World because the United Arab Emirates had a nexus with terrorism that France does not have.”
Lucent said its Chief Executive Officer Patricia Russo met with Schumer shortly after the proposed sale to Alcatel was announced April 3. The two companies said they anticipate the blockbuster telecom vendor deal will take six to 12 months to complete.
