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December 11, 2006

Fujitsu targets Germany with $108m TDS takeover

Fujitsu Services, the European IT services arm of Japanese technology giant Fujitsu, is to make a rare acquisition, after agreeing a deal to buy German SAP services vendor TDS AG for 82m euros ($108m).

By CBR Staff Writer

Computer Business Review reported last month that Fujitsu Services was looking to expand its presence in Germany and France through M&A activity. Some 68% of its last annual revenue of 2.3bn pound ($4.5bn) came from the UK, where it is one of the largest IT services suppliers in the central government sector.

Fujitsu Services will pay 2.80 euros ($3.69) per share to acquire TDS, in which General Atlantic LLC currently owns a 73.8% stake. The deal will represent a smart bit of business for the venture capital company which paid 16.9m euros ($22m) to acquire TDS back in August 2003, with Fujitsu’s offer valuing General Atlantic’s stake at 60m euros ($79m).

The purchase price represents a 14% premium over TDS’ closing price on Friday, December 8th, and its shares rose 10.5% in morning trading on the Frankfurt stock exchange following the announcement of the takeover. General Atlantic revealed earlier this year that it was looking to sell its stake, and TDS said that there had been several interested suitors, including some early interest from Indian services suppliers.

Neckarsulm-based TDS was set up in 1972 and initially focused on providing SAP application management services to mid-size German clients. But the company shifted its focus in recent years to the growth area of human resources outsourcing and now makes over 30% of its revenue providing services such as payroll accounting and HR software implementation.

TDS entered the HRO market through the acquisition of BFD AG mbH in December 2003, and it now handles more than 580,000 payroll transactions every month, which it claims makes it the German market leader, ahead of the likes of HP Services and ADP. The company’s recent financial performance has been improving, and in the first six months of this year, it reported net profit of 1.6m euros ($2.1m), up from 84,000 euros ($110,000) in the year-ago period, on revenue that fell 3.6% to 44.4m euros ($59m).

Fujitsu Services currently has just 300 employees of its 18,000-strong workforce based in Germany, but said the TDS deal will add a further 720 in Germany, Austria and Switzerland. The TDS takeover does not address Fujitsu Services’ lack of scale in France, and a further purchase may be on the cards.

Andy MacNaughton, head of Fujitsu Services’ continental European business, said: France is definitely on our radar, but we need to find a company with the right fit. He added that the acquisition of TDS would not fulfil Fujitsu Services’ ambitions in Germany. We want to be one of the top five players in the country, which means we need to be doing around 500m euros ($660m) to 600m euros ($790m) in annual sales there, and we’re some way short of that, he said.

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Fujitsu Services has made a strong recovery since its plans to float on the London Stock Exchange in the late 1990s were thwarted by a consistently poor financial performance. Its parent company is becoming increasingly aggressive about growing its overseas IT services interests, and the US-based Fujitsu Consulting division has made five takeovers in the last 18 months.

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