S&P: Alcatel on watch

Standard & Poor's said it placed its BB long-term corporate credit rating on Alcatel on CreditWatch with negative implications.

The B short-term corporate credit rating was affirmed, the agency added, noting that the rating action follows today's announcement by Alcatel and Lucent Technologies Inc. (B/Watch positive/B-1) that the two companies are engaged in discussions about a potential merger of equals that is intended to be priced at market.

S&P said the CreditWatch placement reflects the likely disruption that the merger would have on Alcatel, as well as the potentially weaker financial profile of a combined business.

The ratings on Alcatel continue to reflect the anticipated moderate industry sales growth and the group's appropriate cost structure for the current business conditions, its sound portfolio of products and technologies, a generally creditworthy customer base and strong cash position, the agency noted.

The ratings remain constrained, however, by a dramatically smaller and more competitive telecoms equipment industry after the record sales meltdown in the period 2001-2003, S&P added.

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