MergerMarket
Gemalto/Atos rumours played down on strategic fit issues - sources
14 JUN 2017
Rumours that Gemalto [EPA:GTO] has been approached by Atos [EPA: ATO] lack foundation and are undermined by strategic fit issues, two sources following the situation and a person familiar said.
Speculation that Gemalto had been approached by Atos has been circulating in the market for over a month, the sources said. But, the companies’ usual external advisers have not been asked to look into a deal, they said. Atos management has also privately denied that there are deal talks when pressed by potential advisers, the first source added.
While the recent pitching of such a deal by bankers cannot be ruled out, Atos has not approached Gemalto, the person familiar said.
Atos declined to comment.
The takeover talk was likely stoked by a sharp drop in Gemalto's share price following a profit warning in March that warned 1Q revenues would be down year-on-year, the sources and sector bankers said.
The list of bidders for Gemalto is short, with Atosbeing the most likely strategic, sector bankers said. Even so, Atos would only be interested in certain parts of Gemalto, the bankers and sources said.
Atos’s payment division Worldline [EPA:WLN] would have synergies with Gemalto’s banking and payment division, bankers said. Specifically Worldline’s payment terminal services would complement Gemalto’s smart card chip business, the first banker said.
On paper a deal would therefore make sense, but in reality the extent of the overlaps between these two businesses could be problematic when it comes to integrating them, the second source said.
Gemalto’s security technology would also be of interest to Atos’s wider non-transactional business, the second source said. Atos, which provides cloud, data management and online platform solutions, claims it is the European ‘number one’ in cybersecurity.
But, Gemalto’s SIM card business would be of less interest to Atos, the first source and first banker said. Atos does have a smartphone business, which could be complementary, but concerns over the longevity of SIM cards has put pressure on Gemalto’s share price, the banker said. Gemalto’s 1Q results show 62% of its revenues come from payment and identity services, and 38% from mobile products. SIM sales were down 14% year-on-year.
Gemalto’s diverse collection of technologies means there are few strategic suitors who would want the whole business, this banker said.
A large-cap private equity firm such as KKR or Blackstone could be a better fit, a second sector banker said. PEs could be potential bidders but might need reassurance on the lifespan of some of Gemalto’s core business, such as contact payment cards, the first banker said.
Any bidder may have to take into account potential French government scrutiny for takeovers in ‘strategic’ sectors, bankers said. But this is unlikely to be a significant stumbling block, the second source said.
In any case, Gemalto is not expected to make any big M&A decisions at least until its strategic plan is announced in 4Q17, a second person familiar with the situation said. Gemalto is due to disclose a three-year plan, which could give details of its M&A strategy, such as expansion in the US, the person added.
The payments space generally has been the subject of several rumours recently. In March, Atos was forced to deny its Worldline division was preparing to bid for Ingenico [EPA:ING]. Bankers briefed have also said a tie-up between Ingenico and Wirecard [ETR:WDI] was being pitched, as reported.
Gemalto declined to comment.
Speculation that Gemalto had been approached by Atos has been circulating in the market for over a month, the sources said. But, the companies’ usual external advisers have not been asked to look into a deal, they said. Atos management has also privately denied that there are deal talks when pressed by potential advisers, the first source added.
While the recent pitching of such a deal by bankers cannot be ruled out, Atos has not approached Gemalto, the person familiar said.
Atos declined to comment.
The takeover talk was likely stoked by a sharp drop in Gemalto's share price following a profit warning in March that warned 1Q revenues would be down year-on-year, the sources and sector bankers said.
The list of bidders for Gemalto is short, with Atosbeing the most likely strategic, sector bankers said. Even so, Atos would only be interested in certain parts of Gemalto, the bankers and sources said.
Atos’s payment division Worldline [EPA:WLN] would have synergies with Gemalto’s banking and payment division, bankers said. Specifically Worldline’s payment terminal services would complement Gemalto’s smart card chip business, the first banker said.
On paper a deal would therefore make sense, but in reality the extent of the overlaps between these two businesses could be problematic when it comes to integrating them, the second source said.
Gemalto’s security technology would also be of interest to Atos’s wider non-transactional business, the second source said. Atos, which provides cloud, data management and online platform solutions, claims it is the European ‘number one’ in cybersecurity.
But, Gemalto’s SIM card business would be of less interest to Atos, the first source and first banker said. Atos does have a smartphone business, which could be complementary, but concerns over the longevity of SIM cards has put pressure on Gemalto’s share price, the banker said. Gemalto’s 1Q results show 62% of its revenues come from payment and identity services, and 38% from mobile products. SIM sales were down 14% year-on-year.
Gemalto’s diverse collection of technologies means there are few strategic suitors who would want the whole business, this banker said.
A large-cap private equity firm such as KKR or Blackstone could be a better fit, a second sector banker said. PEs could be potential bidders but might need reassurance on the lifespan of some of Gemalto’s core business, such as contact payment cards, the first banker said.
Any bidder may have to take into account potential French government scrutiny for takeovers in ‘strategic’ sectors, bankers said. But this is unlikely to be a significant stumbling block, the second source said.
In any case, Gemalto is not expected to make any big M&A decisions at least until its strategic plan is announced in 4Q17, a second person familiar with the situation said. Gemalto is due to disclose a three-year plan, which could give details of its M&A strategy, such as expansion in the US, the person added.
The payments space generally has been the subject of several rumours recently. In March, Atos was forced to deny its Worldline division was preparing to bid for Ingenico [EPA:ING]. Bankers briefed have also said a tie-up between Ingenico and Wirecard [ETR:WDI] was being pitched, as reported.
Gemalto declined to comment.