WASHINGTON-Experts said a merger between French telecom giant Alcatel SA and U.S.-based Lucent Technologies Inc. likely would undergo intense scrutiny over national security implications, possibly delaying but not necessarily dooming a blockbuster vendor deal that could become a major test case for congressional-driven reforms of the secretive governmental process for reviewing foreign investment in American companies.
While the Alcatel board was set to meet last Thursday to discuss a possible transaction creating the world’s biggest telecom supplier, the Senate Banking Committee unanimously approved and sent to the Senate floor a bill revamping the U.S. Treasury-led Committee on Foreign Investment in the United States. The legislation was prompted by lawmakers outraged by what they considered lackluster examination of the now-restructured Dubai Ports World deal.
Sen. Charles Schumer (D-N.Y.), an outspoken critic of the Dubai Ports deal, was quoted as saying, “The Bell Labs are some of the premier research institutions in the country, and we should watch this proposed merger carefully.”
Others agree.
“In the aftermath of the port security debacle, you can bet that the CFIUS process has been tightened up quite a bit and they will take extra steps to assure that nobody on Capitol Hill accuses them of being asleep at the switch,” said Loren Thompson of the Lexington Institute, a think tank here.
In addition to the two companies’ well-known commercial business operations, Lucent and Alcatel also work closely with their respective government’s defense agencies.
“The nature of the national security activity in which Lucent is engaged, although not a huge part of their revenues, the nature is so sensitive and so important to the future of the military that it will undoubtedly raise some concerns, especially given the fact Alcatel is not headquartered in the United Kingdom, Australia or Canada-countries that we trust implicitly,” said Thompson. “It is headquartered in Paris and will probably remain headquartered in Paris, and that will give additional heartburn to people who are concerned about technology sensitivities.”
Alcatel-Lucent merger talks are playing out as powerful political forces work their will in the United States and France, two countries that became polarized over the U.S.-led invasion of Iraq three years ago. Political tensions between the two nations, though far less intense these days, has not receded entirely.
While the terrorist attacks of Sept. 11, 2001, have caused national security and economic issues to become entwined like no other time in U.S. history, France is dealing with its own political challenges created by the government’s protectionist “economic patriotism” campaign and an explosive youth labor law.
Still, it is unclear whether national security issues are enough to sabotage an Alcatel-Lucent union. Indeed, the deal seems to have enough complex business components-separate and apart from national security concerns-to cause it to collapse.
“Although it is possible for the transaction to go forward,” said Thompson, “this is an administration extremely concerned about issues of technology transfer and technology sensitivity, maybe inordinately so. I would not be surprised to see a delay in the closure of the transaction unless the companies act pre-emptively to spin off part or all of the former Bell Laboratories. That is precisely what the two companies are reportedly mulling.”
Bell Labs, one of America’s crown jewels of telecom innovation during the past century, is part of the company-Lucent-spun off from the old AT&T in 1996.
“Are we willing to see a French company possess this very rich research company?” asked James Lewis, director of the technology and public policy program at the Center for Strategic and International Studies.
Lewis said that while the larger trend is consolidation in the telecom industry, there is not a clear path anymore to foreign investment in-or acquisition of-U.S. companies, particularly with respect to those regarded as critical infrastructure.
House Armed Services Committee Chairman Duncan Hunter (R-Calif.) is championing a bill that would require majority U.S. ownership of critical infrastructure deemed essential to national security and would mandate a five-year divestiture of foreign-owned infrastructure.
Lewis also questioned the timing in light of the Dubai Ports deal.
“It’s not the best time to be coming up to the plate,” said Lewis.
