Gemalto’s share price has had a terrible run over the past four years, down 64 per cent from its peak © AFP

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Even digital security companies cannot keep a secret forever. Atos wants to buy Gemalto of the Netherlands, and the French company said so publicly on Tuesday, with no official answer from the target. Atos can afford the €46 per share offer price. The question is whether Gemalto shareholders can demand more. No, is the answer.

Atos felt it had to out itself as the bidder after Gemalto’s shares surged 5 per cent the previous day. One can see the attraction. Atos and Gemalto overlap in areas such as data protection, artificial intelligence and secure electronic payments. Both are increasingly automating the IT consultancy services they provide. The two also have strengths in the US market and together would get more than a fifth of pro-forma revenues from North America.

Another factor will have caught chief executive Thierry Breton’s eye. Gemalto’s share price has had a terrible run over the past four years, down 64 per cent from its peak. Its price-to-forward-earnings multiple has fallen to a near five-year low.

Financially, the deal makes sense, too. Atos pays all cash, and can afford to do so. Its balance sheet today has no net debt. This purchase would move net debt to just over 1.6 times its earnings before interest, tax, depreciation and amortisation — not a lot. To cover the 42 per cent premium offered to Friday’s undisturbed price, costs will need cutting. Assume that Atos can keep its effective tax rate low at about 19 per cent. It has tax loss credits still available for use. If so, Atos should need to cut €170m annually from overheads, which if taxed and capitalised does the trick. At 15 per cent of pro forma overheads, that reduction looks achievable. Both shares rallied on the day.

For Atos to pay much more, it would need to cut more deeply, possibly into research and development. Mr Breton stated an unwillingness to reduce R&D. Gemalto’s shareholders, having endured four profit warnings recently, should seriously consider the Atos bid.

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