Lucent arrives - in style

Electronic News, April 8, 1996 by Carol Haber

Murray Hill, N.J.--Lucent has arrived. The much-ballyhooed AT&T spinoff, Lucent Technologies, burst onto the scene last week with its much-publicized $3 billion initial public offering of 112,037,037 shares--about a 20 percent stake--priced at $27 each. In what was termed the largest U.S. IPO in history, a total of 98,037,037 Lucent shares are being offered in the U.S. and Canada and 14,000,000 outside North America. After the offer, there will be 636,661,931 shares outstanding, with AT&T owning about 82.4 percent of the common stock. AT&T said it will divest its 82.4 ownership interest in Lucent by Dec. 31, 1996, by means of a tax-free distribution to its shareholders.

With over $21 billion in revenues, the newcomer, which includes the former AT&T Microelectronics, was created as a result of AT&T's restructuring into three separate, publicly held companies (EN, Sept. 25, 1995). Lucent designs, builds and delivers public and private networks, communications systems and software, consumer and business telephone systems and microelectronics components; its R&D arm is Bell Laboratories, originator of the transistor.

Investors waiting with bated breath snapped up enough shares on the first day of trading to bring the share price to a close of 30-5/8. The first-day volume was 42,110,400 shares.

Net proceeds will be used by Lucent to repay about $2 billion in short-term working capital debt and for general corporate purposes.

Lucent shares are listed on the New York Stock Exchange under the symbol LU. Morgan Stanley & Co., Inc. and Goldman, Sachs & Co. are joint global coordinators and joint lead managers for the offering. Merrill Lynch & Co. is senior co-manager. Bear, Stearns & Co. Inc., CS First Boston, J.P. Morgan & Co. and PaineWebber, Inc. are co-managers. Underwriters were said to have an option to buy another 16,650,000 shares to cover overallotments.

The company (or its equivalent in AT&T operations) saw revenues of $21.4 billion for the year ended Dec. 31, 1995; they were generated from the sale of systems for network operators (54 percent of total revenues), business communications systems (24 percent), microelectronic products (9 percent), consumer products (8 percent) and other systems and products, including integrated systems for the U.S. government (5 percent). In 1995, about 77 percent of the firm's revenue was generated from sales in the U.S. and about 23 percent internationally (including exports). For 1994, the company showed $19.8 billion in revenues. In 1995, it posted a net loss of $853 million versus net income of $480 million the year before. Included in 1995 were pretax restructuring and other charges.

Lucent's microelectronic components include high-performance integrated circuits, electronic power systems and optoelectronic components for communications applications. These microelectronic products are used in many of Lucent's own systems and products, but the company also supplies them to other manufacturers of communications systems and computers. Lucent arrives on the scene with several integrated circuit product areas critical to communications applications, including digital signal processors (DSPs) for digital cellular telephones and standard cell ASICs, the company's prospectus noted.

In the area of systems for network operators, Lucent's systems and software enable network operators to provide wireline and wireless local, long distance and international voice, data and video communications services. Lucent's switching, transmission and cable systems are packaged and customized with application software, operations support systems and associated professional services.

In business communications systems, the firm has primarily customer premises-based telecom systems which are used in networks that enable businesses to communicate within and between locations.

For the consumer, Lucent offers corded, cordless and cellular telephones, phone answering systems and related accessories in the U.S. for consumers and small businesses. For the nine months ended Sept. 30, 1995, the firm sold 31 percent of the corded telephones, 28 percent of the cordless telephones and 34 percent of the phone answering systems sold in the U.S., it said.

Lucent said in its preliminary prospectus that "the principal building blocks of the industry are and will continue to be software, microelectronics and product innovation in advanced digital switching and transmission platforms, supported by a competency in and a knowledge of telecom networking."

Not surprisingly, Lucent stated it would increase its focus on customers in the U.S. and internationally who had considered AT&T, its ex-parent, as a competitor or potential competitor and therefore have been reluctant to rely on AT&T as a strategic supplier.

The company said its strategy in wireless networks is to provide network operators and businesses with complete networks to complement, or in the case of network operators, compete over time with wireline networks. The company's sales of wireless infrastructure systems have grown as a percent of total revenues from 6.1 percent in 1993 to 10.3 percent in 1995, it was reported.