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August 15, 2005

Atos Origin rules out major US takeover

Atos Origin SA has no plans to make a major acquisition in the US, despite successfully integrating the $1.8bn takeover of Schlumberger's Sema division in double-quick time.

By CBR Staff Writer

The Paris-based company reported impressive revenue growth in the first half of the year and raised guidance for the full-year. But Xavier Flinois, member of the management board, told ComputerWire that a major deal on the other side of the Atlantic is not likely in the near term.

We need a foothold in America as we have major clients with projects that extend to the US, but we don’t need massive scale, said Flinois. Our main objective is to become the number-one [IT services company] in Europe. We are ahead of Capgemini and T-Systems, but to be ahead of IBM and EDS, we need to be in the top three or four in every country.

Atos Origin now ranks as the second largest player in France behind Capgemini, one of the top 10 in the UK, and the sixth largest IT services vendor in Germany following the absorption of retail giant Karstadt-Quelle’s internal IT department as part of the two companies’ $1.4bn outsourcing contract announced last September.

The IT services sector is strewn with examples of how vendors can come badly unstuck by their M&A strategies. Getronics was driven to the brink of bankruptcy by crippling loan repayments used to fund its takeover of Wang Global in 1999, and Capgemini has only recently showed signs of digesting its ambitious takeover of Ernst & Young Consulting in 2001.

However, Atos Origin has been able to grow its revenue from $1.2bn in 1998 to $6.6bn last year, an increase of 470%, while simultaneously ensuring that its profitability has never taken a significant dent. Atos Origin’s operating profit margin has wavered between a high of 9.6% to 7.3% in the last seven years.

Flinois acknowledged that the company has the flexibility to make further acquisitions, particularly after major shareholder Philips sold its remaining stake in the company last month. He said: We have integrated Sema very quickly, and since the end of the first half, we’ve disposed of our Scandinavian business, and we have no major shareholder which gives us a lot of freedom.

One possible area where the company is considering further acquisitions is in India. Atos Origin revealed plans earlier this year to triple its headcount in the country from its current level of 1,000, to 3,000 by 2006. Flinois said: We are not ruling out buying in captive business from Indian conglomerates. We know how to carve out these businesses without damaging the assets.

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