Lucent delayed the final separation of Agere Systems because its bank creditors made the spin-off conditional on Lucent reaching positive EBITDA and increasing its cash balance to $3 billion. The separation, originally targeted for September 30, 2001, was completed effective June 1, 2002, after Lucent distributed Agere shares to its shareholders.
Why did Lucent delay the Agere spin-off?
On August 17, 2001, Lucent Technologies postponed the planned spin-off of Agere, its former microelectronics division, after bank creditors approved another round of Lucent’s restructuring. Lucent still owned 58% of Agere, and the planned separation could be delayed by as much as six months beyond its September 30, 2001 target, according to EDN’s contemporary report.
The delay was tied to lender protections for Lucent’s finances, not to a reported change in Agere’s identity or business. Creditors required Lucent to satisfy financial conditions before the final separation could proceed.
What did creditors require before Lucent could separate Agere?
The agreement set two conditions: Lucent had to reach positive earnings before interest, taxes, depreciation and amortization (EBITDA), and raise its cash balance from $2.5 billion to $3 billion. EDN reported that Lucent believed it was on track to meet the cash condition; the account did not say the EBITDA requirement had already been met.
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These were creditor covenants—conditions attached to the restructuring agreement—not simply internal targets Lucent could disregard when deciding whether to distribute Agere. The requirements made the timing of the spin-off dependent on Lucent’s financial performance.
How did Lucent describe the conditions and its restructuring?
Chief financial officer Frank D’Amelio characterized the revised covenants as attainable, while qualifying that view on market conditions: “These revised covenants and conditions are definitely achievable, given reasonable market conditions.” He said Lucent’s Phase II restructuring was intended to help the company return to profitability and positive cash flow during fiscal 2002, which began October 1, 2001, as reported by EDN.
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The restructuring included previously announced plans for up to 20,000 layoffs, according to that August 2001 report. EDN also put Agere’s market capitalization at about $12.4 billion at the time. These are historical figures from the 2001 report, not present-day measures.
When was Agere finally separated from Lucent?
Lucent completed the spin-off effective June 1, 2002, according to its SEC Form 8-K. Shareholders of record at 5:00 p.m. EDT on May 3, 2002, received the distribution. This was later than the September 2001 target and within the period Lucent had said the delay might extend.
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How did Lucent shareholders receive Agere shares?
Lucent distributed two classes of Agere stock to shareholders of record. The filing reports that it distributed 37.0 million Class A shares and 908.1 million Class B shares. The exchange ratios were different for each class:
| Agere shares distributed | Exchange ratio |
|---|---|
| Class A | 1 share for every 92.768991 Lucent shares |
| Class B | 1 share for every 3.779818 Lucent shares |
The ratios and distribution totals are stated in Lucent’s SEC filing. Fractional share interests were combined and sold by Lucent’s transfer agent, with the proceeds handled for the shareholders entitled to those fractions.
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