NEW YORK (CNNfn) - Telecommunications leader Lucent Technologies announced plans Wednesday to spin off its slower-growing units to form a separate $8 billion company, freeing Lucent to focus on its high-growth Internet infrastructure and wireless operations.|
New York-based Lucent, the world's largest telecommunications equipment maker, plans to create a new company comprised of its switchboard, or PBX, operations; Systimax, its corporate cabling division; and its local-area network, or LAN, business. The new company does not yet have a name.
"By spinning off (those) businesses, we are sharpening Lucent's focus and creating another leading company to serve business customers," said the company's chairman and CEO, Richard McGinn. "The newly created enterprise company will rank No. 1 or 2 in nearly every market in which it competes."
Meanwhile, the remaining core of Lucent, which generated some $30 billion in revenue for fiscal year 1999, will have about 116,000 employees worldwide.
The move, which was widely expected, pleased investors. Lucent (LU: Research, Estimates) shares closed at 68, up 8-1/2, after hitting a high of 75-3/8 in intraday trading on the New York Stock Exchange.
Lucent shares have languished below $60 since mid-January, due to disappointing first-quarter results, and also due to rumors that the company was under investigation by the Securities and Exchange Commission for its accounting practices.
Analysts said the move satisfies the investment community's call for Lucent to return its focus on its fast-growing operations such as: optical networking; Internet infrastructure; wireless; semiconductors; Web-based enterprise solutions linking private to public networks; and professional design and consulting services for service providers and enterprises.
"It's a terrific move," said Paul Sagawa of investment group Sanford Bernstein in New York. "It creates two businesses, each focused on their own area, and two investment vehicles that are more closely aligned with the kind of performance that investors are looking for."
"The remaining Lucent will be gaining 75 percent of its business in what would be considered a strong growth market," he added. "And we believe that over the next five years, they can sustain better than 20 percent top-line growth."
Christopher Stix, an analyst with investment banking firm SG Cowen on Wednesday raised his rating on the Lucent to buy from neutral, SG Cowen said.
"The spinoff will help increase the growth profile of the company and improve operating margins," Stix said.
In addition, analysts said the move to split the high- and low-growth operations should quash calls for the Lucent to unlock value by creating a tracking stock for its fast-growing optical networking or microelectronics unit.
"(These businesses) are a unified part of their ongoing high growth business, and...should stay as part of that business," said Charles Disanza, an analyst at Gerard Klauer Mattison & Co., defending Lucent's decision to keep its high-growth assets within Lucent.
Lucent has tapped Don Peterson, 50, its chief financial officer, as CEO of the new company, and its previous chairman and current board member, Henry Schacht, 65, as chairman of the spinoff.
The spinoff was approved by its board of directors and will include a tax-free distribution of shares to Lucent's shareowners, the company said. Lucent expects the spinoff to be completed by the close of its fiscal fourth quarter, ending Sept. 30.
The new company will begin with an $8 billion business and a customer list that includes over 90 percent of the Fortune 500 companies.
"We are making the strategic choice to establish two financially strong and independent companies that will deliver greater value to our shareowners," CEO McGinn said.
The new spinoff will maintain all of its customer relationships and partnerships, and it will have about 34,000 employees worldwide, Lucent said.