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Lucent Retirees Fight to Protect Benefits
in Takeover (Update2)
By Ari Levy, Bloomberg News - April 24, 2006 (Bloomberg) -- Retirees of Lucent
Technologies
Inc., concerned they may lose billions of dollars in health benefits when the company is bought by Alcatel SA, hired a lawyer to lead their campaign. The Lucent Retirees Organization, with almost 10,000 members, enlisted Alan Sandals in its defense. Sandals is seeking court-appointed monitors to ensure that retiree health coverage, which amounted to 14 percent of Lucent's costs last year, are carried over in the acquisition. ``You worry about what may be coming down the road,'' said Sandals, who runs Sandals & Associates PC, formerly Sandals Langer & Taylor LLP, in Philadelphia. ``They are right to be concerned.'' Paris-based Alcatel, which will become the world's biggest maker of telephone equipment, plans to shed about $1.7 billion in costs from the $13.4 billion purchase of Murray Hill, New Jersey- based Lucent. The health benefits of Lucent's 182,000 retirees and dependents are among the most likely to be cut, based on savings reaped in similar mergers, said Norman Stein, a professor at the University of Alabama Law School in Tuscaloosa. ``Fresh eyes will be looking at where they can cut things,'' Stein said. ``Whatever maternalistic concern there may have been for retirees often just evaporates.'' Alcatel this month agreed to buy Lucent in a share swap between the two makers of equipment for phone networks. Lucent Chief Executive Officer Patricia Russo, 53, will be CEO of the combined entity based in Paris. Alcatel, which reports quarterly results this week, will control 60 percent of the company with the rest going to Lucent, which announces earnings tomorrow. About 8,800 jobs are expected to be cut. `Will be Honored' Lucent will ``continue to balance the needs of retirees with maintaining a competitive portfolio for the company. It's a difficult balance,'' spokesman Bill Price said. The pension ``will remain and be honored.'' U.S. companies aren't required by law to maintain retiree health benefits. Lucent, responding to a plunge in its earnings and stock price, in the past six years cut dental and vision insurance and raised drug co-payments for retirees. To save $400 million, the company also eliminated the death benefit
for management retirees that provided a payment to a
spouse after the death of a retiree.
Sandals, a candidate for U.S. Senate in
Pennsylvania's
Democratic primary next month, is already helping the retirees' organization sue Lucent over some health cuts and the death benefit. Lucent cut off contact with the group on March 8 because of the suits. Managing Costs Shares of Lucent, up 5.3 percent since the companies' talks were announced, fell 4 cents to $2.97 at 4:16 p.m. in New York Stock Exchange composite trading. Alcatel shares dropped 20 cents to 12.5 euros at the close in Paris. The takeover is pending shareholder and regulatory approval. Lucent spent $753 million on retiree health care in fiscal 2005 out of $5.3 billion in total costs. The company has a total of $6.3 billion in post-retirement obligations that, unlike pension costs, aren't protected under federal law. Cuts could be made, Paul Sagawa, an analyst at Sanford Bernstein & Co., said in a report dated April 13. ``We have been very focused on trying to find the right balance between caring for the needs of our retirees and making determinations about what is affordable,'' Russo said at a press conference after the merger announcement. ``We will continue to manage costs in that way.'' That doesn't inspire confidence in Larry Buynak. The Columbus, Ohio, resident retired from AT&T Corp. in 1989, seven years before the phone company spun off Lucent. At his most recent monthly dinner with other retirees in the Columbus area, he sensed d,j. vu. ``Everyone at the table was unsettled over what was going to happen to us now,'' said Buynak, 75, who started his career with Western Electric in 1954. ``It's been nothing but a long line of promises, most of which have been broken.'' Protected Pension The Communications Workers of America union, which represents 68,000 Lucent retirees plus dependents together with the International Brotherhood of Electrical Workers, has requested a meeting with Russo. Since the talks with Alcatel were first made public, the separate Lucent Retirees Organization has been adding members at twice its average rate of about 120 a month, spokesman Ed Beltram said. Lucent's pension is protected by the Employee Retirement Income Security Act and will remain under the control of the U.S. entity. The company has $31.3 billion in pension obligations and had a $2.7 billion surplus at the end of 2005. The pension fund is managed by Lucent Asset Management Corp, LAMCO, a wholly-owned unit of the company. --Editor: Sondag To contact the reporter on this story: Ari Levy in San Francisco at (1)(415) 743-3542 or Alevy5@bloomberg.net. To contact the editor responsible for this story: Emma Moody at (1) (212) 617-3504 or emoody@bloomberg.net. |