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Updated from 7:09 a.m. EST

It looks like the magic is back at

Lucent

(LU)

, but this show isn't going to be much fun for shareholders.

After a three-year brush with cancellation, the Lucent stage is set for a revival. The company is trimming debt, and the stock could soon surge to $15 and beyond -- a far cry from its low-single-digit range of recent months.

Curiously, though, both of these developments are going to wind up being bad for shareholders. To appreciate how, analysts and investors say study the magician's moves -- starting with a shareholder vote due Wednesday.

With sales still in the doldrums, Lucent's going to need some help getting its stock up from Friday's close of $1.66. So shareholders are going to have to lend a hand. They're likely to approve a reverse split that the company first proposed last fall in an effort to stave off delisting from the

NYSE

.

For its part, Lucent says things are still sailing smoothly. At a industry conference in France Tuesday, wireless COO Cindy Christy told Reuters that the company still expects to hit its 20% sequential growth target this quarter.

And with the drubbing tech stocks have taken in recent years, the effect of the reverse split -- in which Lucent will be using one hand to exchange many existing shares for one new stock certificate -- is at least reasonably well understood. Though Lucent hasn't specified the ratio of the split, its comments in the past have indicated the company will do what it can to get its stock to at least the midteens immediately following the maneuver.

But what investors may not have counted on is that even as this exchange takes place, Lucent has another hand minting fresh new shares to fund its busy debt buyback.

Buyback Binge

It's this part of the show that investors may not enjoy. Lucent has been on a debt-reduction tear, issuing more than 500 million new shares in the past four-and-a-half months to pay down about $1.4 billion in debt, according to a 10-Q filing last week with the

Securities and Exchange Commission

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. And there's no sign the binge will end any time soon.

Lucent has about $2.2 billion in convertible debt remaining, and $1 billion of it comes due in August 2004. While eliminating expensive debt is good -- the two bonds pay interest at 8% and 7.75% -- the flood of new shares and the attendant dilution haven't been kind to stockholders. So far, the company's total outstanding share count has risen by 15%, to nearly 4 billion shares.

The negative impact of this "stealth dilution" was enough to push RBC Capital Markets analyst John Wilson to slap a sell rating on the stock Thursday. Wilson expects the company to continue the buybacks and issue an additional 500 million shares, diminishing the value of each existing share and in turn cutting Lucent's critical earnings per share calculation by 20% or so this year.

A Lucent spokesman says the company has been able to use the stock to retire the debt at attractive prices, which has also helped eliminate $120 million worth of annual interest expenses and dividend costs.

Supporters argue that the company has been up against the wall without the luxury of many alternative strategies.

Clearly, it has been a harrowing three-year brush with financial ruin for the Murray Hill, N.J., networking gearmaker. It's only recently that Lucent has started to show signs of progress on its turnaround. But the process has been excruciating.

In the past two years, more than 60,000 workers were canned and promising new products were killed. Even retiree death benefits got axed. The company has been ruthless in its attempt to restructure its finances and retool its business for a smaller, more competitive market.

With that recent history as an example, there's no reason to think shareholders will be spared further anguish as Lucent sets upon its debt retirement objective.

Presto!

As if the half a billion shares Lucent has already swapped for debt wasn't enough to dilute the stock, the company could pull another stock offering out of its hat.

Last month, Lucent filed a $1.75 billion shelf with the

Securities and Exchange Commission

, replacing an existing shelf of the same value. It is worth noting that the new shelf enables the company to issue equity as well as debt.

The company says it is continually evaluating the capital markets, but a spokesman declined to comment on any future plans for the debt buyback. The company has said that the new shelf gives it more financial flexibility.

To be sure, flexibility means Lucent now has the option to make an equity offering -- either through another equity-linked convertible or perhaps a new stock issue. Either way, it would be bitter medicine for shareholders.

Analysts and investors warn that while Lucent's fundamentals are improving, it would be best to jump into the stock after the curtain falls on this particular effort.