France’s Atos boosts U.S. presence with Syntel acquisition

(Reuters) – French IT services company Atos (ATOS.PA) is boosting its North American operations with a $3.4 billion cash deal to buy Michigan-based IT services provider Syntel Inc (SYNT.O).

People walk in front of Atos company’s logo during a presentation of the new Bull sequana supercomputer in Paris, France, April 12, 2016. REUTERS/Philippe Wojazer

Atos’ shares traded 7 percent lower by 1020 GMT on Monday on disappointment at its results when the French company reported revenue growth of only 1.5 percent for the second quarter.

Atos, which provides IT services to sectors ranging from aerospace to retail, said the deal to buy Syntel will strengthen its activities in banking, finance and insurance and allow it to provide complete IT solutions to its U.S. customers.

“[The deal] will significantly enhance [the Business & Platform Solutions Division’s] growth and profitability profile through an extended digital services offering, cutting-edge India-based delivery platforms, as well as revenue and cost synergies,” Atos Chief Executive Thierry Breton said in a statement.

The acquisition of Syntel, a 38-year-old company with 23,000 employees, comes after last year’s unsuccessful attempt by Atos to buy Gemalto (GTO.AS).

Syntel provides technology and IT services utilising a network of software development centres in India.

Atos will pay $41 per share, a premium of 4.78 percent to Syntel’s closing price of $39.13 on Friday. Including net debt, the transaction is valued at about $3.57 billion.

Atos said it expects the deal to provide double digit earnings per share (EPS) growth from 2019, with Syntel bringing the group around $1 billion in revenue and an operating margin of around 24 percent.

Analysts at Invest Securities said the price was “not excessive”, but a Paris-based trader pointed to the funding of the deal as a cause for concern.

“They are financing it through debt, which is becoming a source of concern among investors with rising interest rates and a high level of debt among companies,” he said.

Analysts and traders also pointed to the company’s first half results as a source of concern.

“Atos’ H1 release suggests to us a deteriorating underlying picture, particularly in North America, against hopes that by this time its organic growth trajectory should have been improving,” said Ameet Patel, Senior Analyst for Northern Trust Capital Markets.

Atos’ payments division Worldline (WLN.PA) on Monday reported half-yearly organic revenue growth of 5.8 percent and announced a deal to process payments for Commerzbank, sending its shares up over 4 percent.

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