Alcatel to Reorganize China Operations, Take Majority Stake in Shanghai Bell

By Andrew Batson

Wall Street Journal; October 23, 2001


Alcatel SA will reorganize its operations in China, hoping to strengthen its position in one of the world's fastest-growing telecommunications markets, company officials said Tuesday.

The French maker of telecom equipment will fold all 17 of its China companies into a newly established company, Alcatel Shanghai Bell. As part of the restructuring, it will pay $312 million to acquire majority ownership of its flagship joint venture, Shanghai Bell.

The majority stake, together with improved efficiencies from the restructuring, will boost Alcatel's earnings by as early as next year, Chairman and Chief Executive Serge Tchuruk said.

Alcatel, which last year moved its Asian-Pacific headquarters to Shanghai, is forecasting $3 billion in sales from the region this year, of which $2 billion are expected to come from China. "China is a kind of bright spot today in the world market," said Ron Spithill, president of Alcatel Asia Pacific. "We see China as a centerpiece of our strategy to grow our business in Asia Pacific."

Furthermore, Alcatel Shanghai Bell will become a global center for Alcatel's corporate research and development, Mr. Tchuruk said. It plans to more than double the number of research engineers to 3,500 from 1,500 currently within three years.

Alcatel will hold 50% plus one share in the new Alcatel Shanghai Bell, which will initially incorporate its wholly owned Alcatel China company and the Shanghai Bell joint venture. Its remaining China joint ventures will be folded into the new company over the next one to two years.

Completing 18 months of what Mr. Tchuruk called "difficult" negotiations, Alcatel will begin the restructuring by buying 10% plus one share of Shanghai Bell from China's Ministry of Information Industry. Alcatel will also buy out the 8.35% stake held by the Belgian government.

Shanghai Bell, which Alcatel says has a third of China's market for voice switching equipment, was founded in 1983, one of the first joint ventures in China's telecom sector. Last year, sales rose 40% on year to $1 billion.

While the Chinese government will retain a large stake in the new company, Alcatel emphasized that it will have full managerial control. Executives are comfortable enough with the arrangement to give the new company full access to all of Alcatel's proprietary technologies.

The new company will be a standard shareholding company with a board of directors, Mr. Tchuruk said. "It's going to be run as one single company, not as a joint venture with requirements from both sides," he said. "It will present one single face to the customer."

While the Chinese shareholders will appoint a non-executive chairman, Alcatel will appoint the managing director, Mr. Tchuruk said. He didn't answer questions about what role the Chinese government would play in the company.

Mr. Tchuruk said Alcatel Shanghai Bell's structure would allow it to eventually be listed on a stock market, but added: "There are no plans to do that in the foreseeable future."