Investors slammed shares of Lucent Technologies Inc. Wednesday, sending the battered stock to a 52-week low amid rumors that the telecommuniations-equipment maker is preparing to file for bankruptcy.
Company officials denounced the rumor as "absolutely false." Lucent spokesman Bill Price Wednesday said the company has no such plans and doesn't know where the rumor started.
The bankruptcy rumor appears to have begun circulating in Europe Wednesday morning, hitting message boards as the market opened and sending shares of Lucent (LU) tumbling $1.40, or 18%, to $6.45 in morning trading on the New York Stock Exchange. The shares sank as low as $5.50 early in the session.
"The rumors are pushing people into a panic that does not exist," Mr. Price said. "We have the financial flexibility to execute our turnaround. Nothing has changed."
Tom Lauria, telecommunications equipment analyst at ING Barings, said he doesn't believe Lucent faces a near-term liquidity issue.
"I would say long-term, the company's operating structure can't support the level of employees and management," he said. "I wouldn't think there is an immediate bankruptcy [pending]."
Some on Wall Street suggested the bankruptcy rumors were started by investors who were shorting Lucent's stock. Given the volatility of the market, such a panic would cause shareholders to sell the stock, leading the price to fall and short sellers to profit from the price drop.
Lucent, Murray Hill, N.J., has been under increasing pressure to lighten its massive debt load, particularly as it absorbs stinging operational losses that totaled more than $1 billion last quarter. An initial public offering last week of Lucent's Agere Systems Inc. unit provided some relief, raising about $3.6 billion and resulting in the transfer of some $2.5 billion of debt from Lucent's books to the network-components maker.
Also, Lucent on Monday announced it is paying off $519 million of its hefty debt by issuing 90 million additional shares of Agere. Morgan Stanley Dean Witter & Co., the investment bank that led Agere's IPO, has exercised an option to buy the additional stock and agreed to retire some of Lucent's short-term debt as payment. The 90 million shares will be used to fill more orders for Agere's stock by Morgan Stanley's clients.
Still, last week Standard & Poor's placed Lucent's debt on negative CreditWatch, noting that the Agere IPO didn't generate as much cash as Lucent needs to satisfy the conditions of a separate $6.5 billion loan facility from banks. The company needs to satisfy those conditions before it can spin off the remaining 63% of Agere to current Lucent shareholders. A credit downgrade would send Lucent's debt to "junk" status and increase its borrowing costs.
