Could This Sale Save Alcatel-Lucent?

With an average annual cash burn of more than $935 million and $3 billion worth of bonds and loans due to be repaid in the next two years, the unprofitable telecom equipment manufacturer Alcatel-Lucent (NYSE:ALU) needs one thing above all others: cash. However, a solution may be at hand. As the number of interested buyers grow, a sale of the company’s submarine-cable business could be a way for Alcatel to shore up its finances.

The business is a very profitable segment for Alcatel, with double-digit margins and a 40 percent market share and, as sources told Bloomberg on Monday, companies ranging from the investment funds Permira Advisers and PAI Partners to the French sovereign fund FSI to France Telecom (NYSE:FTE) are weighing bids. Kepler Capital Markets analysts have estimated that the sale could generate as much as 800 million euros, or $1.1 billion, for the company.

Compared to Alcatel-Lucent’s other business units, its cables segment has much higher margins. However, it is a part of the company’s optics-equipment business, and sales at the optics unit fell 18 percent in the third quarter to 480 million euros, while Alcatel’s total revenue fell by only 2.8 percent…

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