(Bloomberg Gadfly) -- There's naked opportunism, and then there's Atos SE's 4.3 billion-euro ($5.1 billion) bid for security software firm Gemalto NV.
The target's defenses may be weak, but Atos can probably afford to offer more -- and Gemalto should fight for a higher bid.
Gemalto, which also makes technology for chip-and-pin payments, has had a rough year. Successive profit warnings sent the stock to the lowest in about seven years in October. Atos has seen a chance to buy a company that would expand its own IT consulting business, providing opportunities for cost-cutting and cross-selling.
Atos says its approach is friendly. But the decision to make it public on Monday evening, with an acceptance deadline of Friday, puts its prey under incredible pressure.
Gemalto isn't getting help from investors. The French state, its lead shareholder with 8 percent, is already backing the takeover, Atos claims. The stock market has refused to push the target's share price above the 46 euros-a-share Atos has dangled.
At first glance, the deal is deceptively expensive for the buyer. The mooted price values Gemalto at 5 billion euros including assumed net debt. Take the firm's 400 million euros of operating profit forecast for 2019, deduct tax, and the acquisition would generate a meager 6 percent return. The hurdle should be about 8 percent.
But that isn't the whole story. The synergies are likely to be sizeable. If Atos can extract savings equivalent to about 5 percent of Gemalto's 3 billion euros of sales, in line with past acquisitions, that would boost profit by 150 million euros. A transaction would also enable the purchaser to set past losses against own tax bill. With these benefits, the acquisition could generate a double-digit return within three years.
Then there are the financing benefits. A deal would make use of Atos's net cash and spare borrowing capacity: the company should be able to borrow at a cost of about 1 percent, a historically low level.
Atos CEO Thierry Breton has timed his move to perfection. Gemalto is on its knees and this is a trough year for its earnings. The offer contains a seemingly high premium and is above most analysts' price targets. Many shareholders, mindful of their annual performance, will be glad of a deal coming just before the year-end.
What can Gemalto's management do to get something better? CEO Philippe Vallee would struggle to argue the company could achieve the price Atos has mooted on its own. Fighting the buyer would appear to mean going against, in effect, the French state. But he can still try to find an alternative bidder. And, at the very least, he should demand a sweetener for the board to recommend the deal.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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