Alcatel Lucent to Divest LGS - Analyst Blog

Alcatel-Lucent, S.A. (ALU) has signed a definitive agreement with Madison Dearborn Partners to sell its subsidiary, LGS Innovations LLC. The deal is an all-cash transaction valued at $200 million and is expected to close in the first quarter of 2014.

As per the deal, half the amount (around $100 million) will be paid at the closing of the deal and the other half as a subsequent variable component. This variable component will be determined based on the divested company's results of operations for the 2014 fiscal year.

LGS Innovations is a provider of secure networking, satellite communications, VoIP, optical routers and other solutions for the U.S. national security, defense, and advanced research communities.

On the other hand, based in Chicago, Illinois, Madison Dearborn Partners is a leading private equity investment firm. The firm has six funds with a total capital of approximately $18 billion and it has completed investments in approximately 125 companies. Its six verticals include; Basic Industries; Business & Government Services; Consumer; Financial & Transaction Services; Health care and Telecom; Media and Technology Services.

This divestiture is a strategic move by Alcatel and part of its Shift Plan, wherein the company aims to reposition itself as a specialist in IP Networking and Ultra-Broadband Access, while reducing its fixed cost structure by €1 billion ($1.36 billion). The Shift Plan also targets selective asset sales to generate at least €1 billion by the end of 2015.   

Alcatel-Lucent currently has a Zacks Rank #3 (Hold). Better-ranked stocks in the communications components industry include Envivio, Inc. (ENVI), ClearOne, Inc. (CLRO) and TESSCO Technologies Inc. (TESS). All three stocks carry a Zacks Rank #2 (Buy).

1€=$1.36720, as on Dec 20, 2013