NEW YORK (TheStreet) -- Alcatel-Lucent (ALU) shares are down 3.15% to $3.69 in early market trading on Monday after activist hedge fund Elliott Management disclosed a 1.3% stake in the company over the weekend.

The move comes weeks after the French telecom equipment manufacturer agreed to be purchased by Nokia (NOK) - Get Report for $16.6 billion.

That merger was approved despite objections from London-based hedge fund Odey Asset Management, which is Alcatel's second largest investor, saying that the purchase price was to low.

Elliott Management has a history of building stakes in companies that are in the process of being acquired and then asking for a higher price to be paid by the bidder, according to the Financial Times.

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The takeover agreement between Nokia and Alcatel would be difficult to derail because only Nokia shareholders will be given a vote on whether to proceed with the acquisition, the Times noted. 

Both companies already approved the terms of the transaction and hope to close the deal in the first half of 2016.

TheStreet Ratings team rates ALCATEL-LUCENT as a Hold with a ratings score of C-. TheStreet Ratings Team has this to say about their recommendation:

"We rate ALCATEL-LUCENT (ALU) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income and good cash flow from operations. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • ALCATEL-LUCENT reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, ALCATEL-LUCENT continued to lose money by earning -$0.02 versus -$0.74 in the prior year. This year, the market expects an improvement in earnings ($0.16 versus -$0.02).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Communications Equipment industry. The net income increased by 23.1% when compared to the same quarter one year prior, going from -$100.57 million to -$77.34 million.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. We feel that the combination of its price rise over the last year and its current price-to-earnings ratio relative to its industry tend to reduce its upside potential.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Communications Equipment industry and the overall market, ALCATEL-LUCENT's return on equity significantly trails that of both the industry average and the S&P 500.
  • The debt-to-equity ratio is very high at 2.83 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with the unfavorable debt-to-equity ratio, ALU maintains a poor quick ratio of 1.00, which illustrates the inability to avoid short-term cash problems.
  • You can view the full analysis from the report here: ALU Ratings Report