Atos to buy Syntel in $3.4bn US push

DALLAS/PARIS: Atos SE agreed to buy Syntel Inc in a $3.4 billion cash deal to help it get better access to US financial customers like American Express Co and State Street Corp.

At $41 a share, the transaction is also a way for acquisitive Atos to recover from a rebuffed bid eight months ago for Gemalto NV, which secures digital payments for banks and other clients.

Atos provides IT services to sectors ranging from aerospace to retail, while Syntel provides technology and IT services utilising a network of software development centres in India.

“We’ve just acquired a massive booster to our US business and to our digital business,” Atos finance chief Elie Girard said in a call with reporters yesterday.

“As a French company reinforcing its presence in the US, we’re absolutely not worried about trade — our industry is not on the radar as a target of trade wars,” he said.

The per-share figure is 4.8% more than Syntel’s closing price of $39.13 on July 20. The total price is $3.57 billion including Syntel debt.

“Atos’s transaction mirrors that of its competitor Capgemini SE, only more than three years later,’’ Anurag Rana, an analyst at Bloomberg Intelligence, wrote in a note.

In a similar move, Capgemini bought Igate Corp for about $4 billion in 2015 to expand with US customers and add staff in countries with cheaper labour.

Atos yesterday reported earnings that showed revenue and operating profitability fell in North America in the first half, though total sales grew 1.7% to €6 billion and the margin improved overall.

The company confirmed its fullyear targets.

“While the Syntel transaction may boost Atos’s performance in the US, there are questions about prospects for the company’s underlying performance in that region,’’ Ameet Patel, an analyst at Northern Trust Capital Markets, wrote in a note.

Atos said it expected the deal to close by year-end, adding to earnings immediately and providing “double-digit accretion as early as 2019” excluding transaction costs and goodwill.

The boards of both companies approved the transaction on July 20 and Syntel shareholders holding 51% of the stock, including founders, pledged to vote in favor, according to a statement.

“We see potential for synergies on sales as well as margins,” Girard said. “The acquisition price is about 14.7 times Syntel’s earnings before interest and taxes over the past 12 months, before taking synergies into account.’’

While Atos’s market capitalisation of €13.2 billion ($15.4 billion) is almost five times that of Syntel, the American company’s shares have been growing faster. Syntel shares have doubled in the past year, while Atos was little changed before the deal announcement.

Syntel’s top three customers — American Express, State Street Bank and FedEx Corp — accounted for 45% of its revenue last year, and only about 11% of sales came from outside of North America, according to an annual report.

While the company gets most of its revenue from the US, the bulk of its 23,000person workforce is in India.

Syntel’s net revenue has dropped for the past two years, including a 4.4% decline to $923.8 million in 2017.

The company has global development centres in India, Scotland, Poland and the Philippines, with 76% of its billable workforce located in India, according to its annual report.