Atos To Buy Siemens’ Services Arm For £720m

Merger of Atos and Siemens creates a European services giant second only to IBM

Siemens and Atos Origin are creating a European IT services giant  in a deal worth €850 milion (£720m). Atos will buy Siemens Information Solutions, the services arm of Siemens, and Siemens will get a 15 percent stake in Atos.

Atos claims the deal will make it the fifth largest IT services company in the world, and the second largest in Europe, after IBM. With 78,500 employees, Siemens IT Solutsions (SIS) has made a cumulative loss estimated at €2 billion over the last few years, and the new company hopes to absorb that and turn a profit – starting with a €5.5 billion (£4.7bn) seven year contract with Siemens.

However, the same day as this deal was announced, Atos’ arch-rival Capgemini announced a deal to buy a different German services company, CS Consulting.

French turnaround king takes charge

Thierry Breton. Picture by Nicolas Esposito

The merger will create a “European champion in the IT industry”, said Atos Origin chief executive Thierry Breton  in the press call. He expects to make €225 million of synergy savings, starting with 1,750 Siemens staff to be laid off in Germany.

After that, Atos hopes to reap revenue benefits from the bigger scale of the company and the move to cloud computing. Breton predicted Atos’ sales would go from €5 billion last year to €10 billion in 2013, with Siemens’ debt cleared by the end of 2012.

Atos now has 30 large data centres, and will use them to take a major role in cloud computing, said Breton. “We are committed to becoming the leader in cloud computing in Europe,” Breton said.

Breton has political clout, along with a track record in managing corporate losses and turning companies around. In 2002 he took over France Telecom, then stricken with €70 billion of debt from the telecoms bubble, which he reduced to €32 bilion before he left in 2005 to become the French finance minister, a post he held till 2007.

Atos has been a serial acquirer of services companies, buying Orgin in 2000 and Sema Group in 2004, and specialises in large and visible deals, such as the IT for the London Olympics. It was the first to sign one of the memorandums of understanding with which the coalition government hopes to help cut the UK’s IT spending and increase its use of the cloud.

SIS, meanwhile, legally separated from Siemens in October, but is still 100 percent owned by the German giant. It has already laid off 4,400 people this year.

Analysts like the deal

Analysts are positive about the deal. “The new structure will be able to fight for larger infrastructure deals against the likes of IBM, HP, CSC or T-Systems,” said Christophe Châlons, chief analyst at PAC, a French analyst firm. PAC disputes Atos’ claim to be number two in Europe for IT services, ranking the company third, and sixth in the world market.

“Despite its presence in 42 countries and its geographic rebalancing by integrating the German market, the new European powerhouse still lacks critical size and visibility in the key markets of the Americas and APAC,” warned Châlons in a statement.

“From a Siemens point of view, the price is satisfactory – much higher than 3 years ago, however probably lower than in 2 or 3 years – and the disposal will enable Siemens to focus on its 3 core businesses,” said Frederic Munch, managing director of PAC Germany.

Meanwhile, a statement from TBR analysts Elitsa Bakalova and John Caucis said: “TBR believes the acquisition of SIS is a major strategic move for Atos Origin ahead of the expected recovery in the IT services market in Europe in 2011 and 2012.”