Atos Slides After It Proposes Merger With DXC Technology

(Bloomberg) -- Atos SE, the French technology services provider, has approached U.S. competitor DXC Technology Co. about a potential combination that would give it more scale to compete with SAP SE and Accenture Plc.

Atos said the friendly move is aimed at creating a leader in digital services, adding in a statement that there’s no certainty it will result in a deal. Atos shares fell more than 10% as investors and analysts questioned the strategic rationale for a tie-up.

Bloomberg had reported that Atos was evaluating possible acquisitions including DXC while Reuters said earlier the French company made an approach valuing the target at more than $10 billion. DXC had a market capitalization of around $6.7 billion as of Wednesday’s close. A representative for DXC couldn’t immediately be reached for comment.

A merger could make it easier for Atos to compete for deals with global clients that are revamping their technology infrastructure to handle more remote work. So far the company has concentrated on bolt-on acquisitions, with recent deals including Dutch cybersecurity firm Motiv ICT Security and U.S. software firm Eagle Creek.

Shares of Atos fell 10.2% in Paris trading Thursday, giving the company a valuation of 7.4 billion euros ($9.1 billion). Shares in DXC were up 11% in pre-market trading in New York after earlier rising as much as 32%.

“The stock is reacting potentially to three elements,” Laurent Daure, an analyst at Kepler Cheuvreux, said before Atos confirmed its approach. “DXC is a company with organic growth decline, it has a high exposure to infrastructure and Atos would be paying a very large premium.”

Atos is also investing heavily in cloud computing. Last year it launched Atos OneCloud, an initiative to move clients to the cloud, and said it would invest 2 billion euros over the next five years.

Tysons, Virginia-based DXC provides analytics, cloud, security and business process services to clients in the insurance, automotive, aerospace and defense industries.

DXC has been down-sizing through divestitures. Last year, it sold a business focused on state and local medical services to buyout firm Veritas Capital for $5 billion. It also agreed in July to sell a health-care software business to Dedalus Group for $525 million.

Atos’s largest acquisition to date was its $3.4 billion purchase of Syntel Inc. in 2018, according to data compiled by Bloomberg.

Atos has been stymied in some previous takeover attempts. In 2017, it made an unsolicited bid for Dutch cybersecurity provider Gemalto SA before being outflanked by Thales SA.

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