Alcatel Lucent SA (ADR) (ALU): You’re Being Sold the Same Old Story, I Wouldn’t Buy It

Page 1 of 2

Tuesday, I wrote an article entitled, “Cutting Costs Should Not Be Part of This Company’s Plan!” after a report that Alcatel Lucent SA (ADR) (NYSE:ALU) was backing out of its original plan to divest assets as part of its restructuring strategy. This strategy has created gains of more than 100% since November 2012, yet on Tuesday, the stock fell 1.5% as rumors of this strategy falling apart hit the market. Turns out, these “rumors” were correct, and now Alcatel Lucent SA (ADR) (NYSE:ALU) has backed out of its original plan.

Alcatel Lucent SA (ADR) (NYSE:ALU)

Insanity at its best

My first article showed how “cost-cutting” is a bad idea for Alcatel Lucent SA (ADR) (NYSE:ALU). Why? The company has done nothing but “try” to cut costs for the last five years, laying off more than half its workforce and losing 70% of its stock value. Yet, for some reason, the company believes this plan will work.

On Wednesday, the company announced that it intends to cut costs by $1.25 billion and sell another $1.25 billion worth of assets within two years. Furthermore, the company plans to slash $2.5 billion in debt via selling its stock and additional asset sales.

Incredibly, Alcatel Lucent SA (ADR) (NYSE:ALU)’s stock traded higher by 3.2% on this insane proposition. The original plan was to trim its inefficient segments, those producing losses, and then focus on its growing and profitable segments. This would have been much more beneficial to shareholders.

What is the company telling you?

This is a real simple scenario, as the company is telling us three things.

First, there is severe separation within the company as to its direction. Aside from Ben Verwaayen’s resignation as CEO from Alcatel, just shortly after the announced “plan,” the company’s CFO, restructuring advocate, Paul Tufano is now leaving! He has been very vocal in his support of the original restructuring plan, saying it would cost $625 million this year but that major moves would occur. The company’s board, compiled of those from both the original Alcatel and Lucent, have been disconnected since the merger in 2006, and apparently have removed everyone who still supports a leaner and meaner Alcatel Lucent SA (ADR) (NYSE:ALU).

Second, the $2 billion financing was worthless. Alcatel took $2 billion from Goldman Sachs and put its patents up as collateral. Now, the company is aiming to pay off $2.5 billion in debt (Goldman loan), with stock. Essentially, the company is preparing us for financing, or public offerings, indicating that it has no use for the $2 billion as part of a large restructuring program; and that it will dilute shares to pay off the debt.

Third, all of its “asset sales” are already accounted for and priced into the valuation of the company, as they have no plans to make any substantial moves. Keep in mind, the sale of its submarine optical unit for $1.1 billion has already been reported back in January. It hasn’t yet occurred, but judging by the company’s goal of selling “$1.25 billion worth of assets,” it does appear to be the $1.25 billion submarine segment. Thus, no further changes should be expected from this near bankrupt company, which refuses to make substantial changes.

There is so much upside with the original plan

This new “plan” is bad in every way, with the company’s only “plan” to cut more costs and raise more money. It is the quintessential example of insanity: Doing the same thing over-and-over and expecting a different result.

This is a company that posted quarterly sales of $4 billion last quarter, operates in six segments, and four of those segments saw significant growth of more than 5% year-over-year. In other words, Alcatel has about $2.7 billion worth of quarterly sales that is growing at a combined 8% year-over-year rate, nearly $11 billion in annual revenue. The remaining $8.5 billion in annual revenue weighs on the company and pushes operating margins to just 0.37%.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!