updated 9/7/2006 5:04:23 PM ET 2006-09-07T21:04:23

Alcatel SA and Lucent Technologies Inc. overcame shareholder misgivings to win firm backing Thursday for their $10.7 billion tie-up to create a major global telecommunications equipment maker.

The near-simultaneous votes in Paris and Wilmington, Delaware, gave the go-ahead for Alcatel’s all-stock acquisition of New Jersey-based Lucent, scheduled for completion by the end of the year.

The stock prices of both companies — which supply transmission and switching gear to telecom businesses and Internet operators — have fallen since the April merger announcement, sapping enthusiasm for the deal among investors.

Many Alcatel shareholders had complained that they were paying too much for Lucent in the light of weaker earnings and guidance posted by the U.S. company since the combination was negotiated.

Lucent, which had faced vocal but less widespread opposition from some of its own investors, last week settled two shareholder lawsuits that had threatened to delay the merger vote.

Analysts had nevertheless predicted that Alcatel shareholders would swallow their pride and offer their support, concluding that even a badly priced deal was better than none.

Any room for renegotiation was “insufficient to offset increased operational risks from a delay,” UBS advised clients two days before the vote.

Recent sector consolidation has increased doubts about whether either company has the critical mass to go it alone. Nokia Corp. and Siemens AG announced a telecom equipment joint venture in June, eight months after LM Ericsson bought Marconi.

“The consolidation in the industry is happening right now. You can’t wait it out,” said Jim Kelleher, an analyst with New York-based Argus Research.

Lucent Chairman and CEO Patricia Russo, who will lead the new Alcatel-Lucent from its Paris headquarters, told shareholders the deal would create the first truly global company in the sector.

“On our first day in operation, we’ll be the No. 1 company in wireline, we’ll be No. 3 in wireless and in the top three in services,” Russo said.

Alcatel-Lucent will have the industry’s broadest product portfolio and one of the largest research and development operations, she said.

Russo and Alcatel boss Serge Tchuruk — already named non-executive chairman of the combined company — both faced down hecklers as they took the agreement to a vote.

“Mark my words, within one year you will want to leave,” shareholder activist Evelyn Davis admonished Russo. “The French are going to run the show.”

When it came to the count, however, the deal passed with 94 percent of ballots cast by Lucent shareholders, although a low turnout meant that it only just scraped the required majority of all outstanding shares. Among Alcatel shareholders, the acquisition proposal won more than 85 percent of votes cast.

The combined company will have a strong, evenly distributed presence around the globe — with Europe, North America and Asia each supplying close to one-third of its $25 billion annual sales. North America currently accounts for 14 percent of Alcatel’s business, while Europe generates 13 percent of Lucent’s.

Alcatel is also buying Nortel Networks Corp.’s wireless business for US$320 million (euro250 million) — adding a portfolio of UMTS mobile phone technology to its own strength in GSM networks and Lucent’s expertise in CDMA, the third main wireless standard.

The combination of Alcatel and Lucent will generate annual synergies of US$1.7 billion within three years, both companies say — of which over half will result from the planned shedding of 9,000 jobs, or about one in ten workers.

Thursday’s votes leave one remaining obstacle to the deal: the U.S. government’s Committee on Foreign Investment in the United States.

In order to answer concerns about the Lucent security and defense technologies to be acquired by Alcatel, the two companies have agreed to ring-fence the sensitive activities under a new subsidiary headed by former U.S. defense secretary William Perry, former CIA chief James Woolsey and Kenneth Minihan, one-time head of the National Security Agency.

The U.S. committee is expected to give its verdict on the plans by the end of the year, Tchuruk said Thursday.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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