Atos bids $5.1 billion for Gemalto

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Atos SE made a 4.3-billion-euro ($5.06 billion) unsolicited bid for Gemalto NV with the backing of the French state’s investment bank, seeking to create a European leader in cybersecurity, digital technologies and payment services.

Atos is proposing to pay 46 euros a share in cash, 36 percent above Monday’s closing price, the Bezons, France-based company said in a statement late Monday. Atos called the offer friendly and said it wants to engage in discussions with the target about a deal, which would be the biggest of the year between two European technology companies. Amsterdam-based Gemalto said it’s reviewing the proposal, which it described as conditional.

Thierry Breton, the former French finance minister who runs Atos, said the company is “absolutely determined” to complete the transaction, and it has the backing of Bpifrance Financement SA, the state-run investor that is Gemalto’s biggest shareholder. Gemalto’s shares had lost almost two thirds of their value since 2014 amid slumping demand for its phone and credit card chips.

“We continue to do this on a friendly basis, but we are absolutely determined and we will do this transaction, because it’s good for Gemalto shareholders, because it’s good for Gemalto’s stakeholders and because it’s good for Atos shareholders,” Breton said Tuesday on a call with analysts.

Atos has been on a buying spree in recent years in a bid to enter new regions and add a broader range of products, including in health care. Gemalto Chief Executive Officer Philippe Vallee, who succeeded Olivier Piou in late 2016, has been seeking to diversify by moving into security software for everything from passports to connected cards.

Shares of Gemalto climbed 34 percent to 45.56 euros in Amsterdam on Tuesday and Atos gained 3.05 percent to 128.40 euros at 9:07 a.m. in Paris.

Gemalto shares had dropped 38 percent in the year through Monday, after a July warning of an impairment charge and prediction that annual revenue at its Americas payments and SIM businesses would fall more than 10 percent. In March, the company said diminished demand from U.S. banks would force it to scale back production of security-filled credit card chips. Atos, by contrast, had seen its stock jump 24 percent in the same period.

Gemalto said it will review the bid and determine the best course of action before responding by Dec. 15. The Amsterdam-based company has retained Deutsche Bank AG and JPMorgan Chase & Co. as an adviser and said there is no certainty the proposal will lead to a firm offer.

"The deal would make sense even if management should give us more details on the strategy going forward and what it would do with some of Gemalto’s assets that could be non-core for Atos," analysts at Kepler Cheuvreux wrote in a note. "Atos should now convince Gemalto shareholders to tender."

Atos has already secured financing from two banks for the deal, Breton said on a conference call with reporters on Monday. The acquisition would be Atos’s largest since it was formed in 1997 from the merger of two French companies, according to data compiled by Bloomberg.

Atos currently gets just 5.7 percent of its 11.7 billion-euro annual revenue from its big data and cybersecurity division. The French company beefed up its offering when it agreed to buy Siemens AG’s communications cybersecurity division in October. Gemalto generated annual sales of 3.1 billion euros in 2016. Breton said he would seek “industrial partnerships” to help turn around Gemalto’s troubled SIM business.

Gemalto’s shift from SIM cards to software and cybersecurity had initially paid off under Piou, the previous CEO, with the shares trading at about 60 euros when Piou announced his retirement last year. Under Vallee, Gemalto has faced mounting challenges as it became clear that the company had overestimated the pace at which customers would shift to new technologies, especially the transition to chip-and-PIN bank cards in the U.S.

Bloomberg News