Bell Labs’ future under discussion

Bell Labs, the technology and communications research unit owned by Lucent, could be separated and placed under the control of a new board if the US company agrees to merge with France’s Alcatel.

According to people familiar with the matter, the two telecoms equipment makers have been seeking to hammer out details of a structure for Bell Labs that would satisfy a US regulatory review focused on national security issues.

One solution that appeared to be gaining traction as Alcatel and Lucent enter the final round of negotiations was a separation of the Bell Labs unit, which has a close relationship with the US military, under the control of a board composed of US political and business leaders.

Another option involves separating only Bell Labs’s classified research business. By voluntarily suggesting a structure for Bell Labs, the two companies are hoping to enter what is expected to be a tough regulatory review on better terms with the US government.

Pre-emptive attempts to address concerns that might be voiced by the Committee on Foreign Investment in the US – the inter-agency panel that vets foreign takeovers on national security grounds – are not uncommon, and often help smooth the path to approval.

Alcatel and Lucent are expected to argue that a merger would preserve Bell Labs, an American icon, in the face of competitive threats from China.

The future of Bell Labs is one of a number of outstanding issues facing Alcatel and Lucent as they enter a crucial round of talks about a deal. According to people close to the discussions, no significant stumbling blocks had been hit over the weekend, and both sides were aiming for an agreement before the end of the week. Alcatel’s board is expected to meet on Thursday, and could give a green light to the deal then.

However, insiders cautioned that talks might still be delayed or fall apart. In 2001, Lucent and Alcatel came close to clinching a deal but the US group pulled out at the 11th hour.

Under the terms of the agreement being proposed this time, the combined company would remain headquartered in Paris, with Patricia Russo, who runs Lucent, as chief executive.