Telecommunication equipment makers Lucent and Alcatel are discussing a possible merger.
"We can confirm that Lucent and Alcatel are engaged in discussions about a potential merger of equals that is intended to be priced at market," the companies said in a joint statement, adding that there was no guarantee the companies will reach an agreement.
"We will have no further comment until an agreement is reached or the discussions are terminated," it said.
A merger between Alcatel and Lucent would help them to fend off competition from rival equipment makers like Huawei Technologies and ZTE, which are looking to take market share from the more established players, said Bertrand Bidaud, vice president of carrier operations and strategy at Gartner Inc.
"They are operating in a business segment where there is no growth and more and more competition," he said.
A deal makes sense because there is not much overlap between the customer bases of the two companies, Bidaud said. While Lucent is very strong in North America, Alcatel is strong in other regions, including Europe and Asia, he said.
"There's a good strategic fit if you look at it that way," Bidaud said.
In addition, the companies would benefit by combining their research and development (R&D) budgets, which increases the chance they will develop a "hit product," he said.
Lucent and Alcatel reported multi-billion dollar earnings in their most recent annual financial statements.
Alcatel's revenue for the period from January to December 2005 was 13.1 billion (US$15.6 billion), up 7 percent, with net profit of 930 million, up 61 percent on the same period a year earlier. Lucent reported revenue of US$9.4 billion, up 4 percent, and profit of US$1.2 billion, down 41 percent, for its fiscal year from October 2004 to September 2005.
Lucent and Alcatel have been down this road before. In 2001, the two companies held discussions over a possible merger, but the talks ended without an agreement. At the time, unconfirmed reports suggested the talks failed because Lucent had insisted on a merger of equals, with both sides having an equal number of representatives on the combined company's board of directors.