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Capgemini looks to industry's digital future with Altran deal

By Inti Landauro and Matthieu Protard
Paul Hermelin, Chairman and CEO of Capgemini, and Dominique Cerutti, Chairman and CEO of Altran, shake hands after a news conference in Paris

By Inti Landauro and Matthieu Protard

PARIS (Reuters) - Capgemini's shares surged on Tuesday on the back of the software and consultancy company's 3.6 billion euro ($4.1 billion) takeover of smaller rival Altran to create a group with more than 250,000 staff harnessing new technologies.

Capgemini hopes to tap into the rising demand from customers for research and development outsourcing, and software and IT developments in industries ranging from telecoms to aerospace. The combined company would have annual revenues close to 17 billion euros ($19.4 billion).

"We are positioning ourselves as a clear strategic partner to assist our clients in taking full advantage of the revolution created by the developments of the cloud, Edge computing, IoT, artificial intelligence and 5G," said Capgemini Chief Executive Paul Hermelin.

Hermelin, 67, will remain chairman and CEO of the merged entity, but said he will proceed with a plan to become non-executive chairman in 2020 to let one of the two Capgemini co-COOs - Thierry Delaporte and Aiman Ezzat - take over as CEO.

Capgemini shares were up 7.5% by 1115 GMT, having touched their highest level since late April, while Altran climbed 22% to 13.99 euros, a fraction shy of the offer price.

"We think the deal makes strategic sense, helping Capgemini to capitalise on the digital transformation of industrial companies," wrote analysts at Credit Suisse.

The merged group faces some powerful competitors.

Accenture's has 477,000 staff and revenues last year of $41 billion, according to its website, while IBM says it has around 350,600 staff and had 2018 revenues of $79.6 billion.

Capgemini offers IT services to large companies, while Altran offers engineering consultancy and subcontracts engineers to develop projects. Both companies supply the same kind of customers, large industrial groups.


BID TERMS

Late on Monday, Capgemini said it would offer 14 euros per Altran share in cash, representing a 22% premium over Altran's Monday closing price of 11.47 euros.

The operation, that values Altran at 5 billion euros including 1.4 billion euros in net debt, will be carried out through a tender offer in the coming months. Hermelin said he intends to close the deal by the end of this year.

Capgemini expects the deal will result in large cost savings and will add more than 25% to its earnings per share by 2023.

Hermelin said he does not expect to dispose of any assets for regulatory reasons given their modest respective market shares in a highly fragmented industry.

More such deals are possible, Hermelin and Altran's CEO Dominique Cerutti said, as potential customers are consolidating and a growing number of companies are outsourcing more and more areas of research and development.

Last week, Finnish IT services firm Tieto scooped up its Norwegian rival Evry for about $1.5 billion.

The Altran acquisition will extend Capgemini's reach in the United States, a market where it seeks to become a top player.

"Altran brings us 800 million euros in revenue in the U.S. We surpass now 5 billion euros, it's good. We will be in the top 10, but we are still far from the top 5, the road is long," Hermelin said.

Hermelin said Capgemini hoped to maintain its dividend payout policy after the Altran acquisition, although the company would not carry out share buy-backs over the next 2-3 years.

($1 = 0.8783 euros)


(Reporting by Sudip Kar-Gupta, Josephine Mason, Pawel Goraj and Danilo Masoni; Editing by Louise Heavens and Keith Weir)