UPDATE: Lucent Spin-Off Aims at Corporate Nets

BOSTON (03/01/2000) - Lucent Technologies Inc. is spinning off its PBX, Systimax structured cabling and data business based on LANs (local area networks) to shareholders, creating a separate company aimed at the corporate networking market, executives said today at a press conference.

The spin-off was approved yesterday by Lucent's board of directors and is expected to be done through a tax-free share distribution to Lucent shareholders. The spin-off should be complete by the end of the fourth fiscal quarter of this year on Sept. 30.

Lucent will be able to focus more on areas like optical networking, Internet infrastructure, wireless networking, semiconductors, Web-hosted applications, and professional design and consulting. The spin-off means that Lucent will be able to "sharpen its focus in every area in which it competes," through both the new company and Lucent, said Chairman and Chief Executive Officer Richard McGinn.

The new company, to be named later, will begin as a US$8 billion business, with customers including more than 90 percent of the Fortune 500, executives said.

Donald Peterson, who currently is Lucent's executive vice president and chief financial officer, has been named president and CEO of the new company. Henry Schacht, who was Lucent's chairman and is now on the board of directors, will be chairman of the new company. Senior Vice President and Controller James Lusk will take over as Lucent interim chief financial officer.

The new company will have its own brand, board and research and development organizations, operating separately from Lucent.

"The new company will be launched as a market leader with enviable customer relationships," Schacht said, adding that Lucent's enterprise service business has grown more than other areas of the company, and so Lucent leads in worldwide call centers and voice messaging and in U.S. voice systems. But that will not be enough in the future.

"While we're the leader in traditional markets, the industry is on the brink of enormous change" he said.

He and other executives noted that industry changes are being led by the pervasiveness of the Internet coupled with demands for constant network access and greater data storage.

Spinning off has its advantages and disadvantages, executives admitted under questioning from the press. Though the spin-off will be able to concentrate on high-growth areas of networking markets, it also is the case that use of the Lucent brand name will be missed.

"We will have to replace that with an equally strong brand with the same message of confidence and strength that we now enjoy through Lucent, but we have the resources to do that," Peterson said.

The new company will be able to enter cross-licensing deals and intellectual property agreements with Lucent, McGinn said. Researchers from Lucent's Bell Labs will be joining the new company was well, he said.

Executives mentioned that Lucent has experience dealing with a spin-off, an apparent reference to its own start as an AT&T Corp. spin-off in 1996.

The financial market responded favorably to Lucent's news, with the company's shares on the New York Stock Exchange trading at a high of slightly more than $70 per share, up $11 over yesterday's closing trade.

Lucent, in Murray Hill, New Jersey, can be reached at +1-908-582-5800 or http://www.lucent.com/.

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