The combined company will bring together some 29,000 people and generate pro forma 2003 revenue of E3.41 billion, of which E2.67 billion would be from Getronics and E739 million from PinkRoccade.
Stuart Appleton, SVP at Getronics, and one of the team responsible for the integration process, told ComputerWire that the announcement follows a period of discussions that have taken place over the past year between the two companies. We had a look at PinkRoccade in the UK over the last 12 months. It widened into a larger discussion in August 2004 because Getronics had a review of its strategic position, and as we know PinkRoccade very well, it was then a question of whether the people would fit and we could accommodate them.
Getronics’ chairman and CEO Klaas Wagenaar will become chairman of the merged group, while PinkRoccade’s CFO Aart Klompe will be proposed to join the management board. PinkRoccade’s COO Peter van den Heuvel is expected to join the Dutch management team, and its CEO Henk Bosma will become a member of Getronics’ supervisory board, along with all the remaining PinkRoccade supervisory board members. Getronics said it expects there to be an equal representation of management between Getronics and PinkRoccade within the UK and Dutch markets.
Significantly, the deal will establish Getronics as the largest IT services provider in the Netherlands. It replaces Atos Origin as the number one: Paris based Atos grew substantially in the Netherlands market following its acquisition of Origin, the IT services division of Dutch electronics giant Philips, in November 2000 in a deal worth $2.3 billion. Atos Origin expanded in the region further in July 2001, acquiring Dutch telecommunications provider KPN’s data center, and 1,040 staff as part of an outsourcing agreement.
Getronics meanwhile will increase its revenue share in the UK market by one-third following the deal, while headcount will almost double to 2,000. Getronics is present in a further 28 international markets across Asia Pacific, the Americas and central and eastern Europe. However, the PinkRoccade takeover does not substantially grow any of these operations with combined revenue remaining static at E1.77 billion. Mr Appleton said Getronics intends to drop the PinkRoccade name in the UK, but the Netherlands operation will be co-branded Getronics-PinkRoccade for the foreseeable future.
Getronics has earmarked annual cost savings of between E35 million and E40 million through the merger, which it said would contribute to the company’s consolidated operating income in 2005. It also expects to achieve one-off cost savings of between E35 million and E40 million during the first year, which will be a result of consolidation and restructuring in the UK and Dutch markets where headcount will be reduced by 4%, or by approximately 520 of the total 13,000-strong UK and Netherlands workforce.
PinkRoccade has struggled against declining market share over recent months, fueling speculation that the company would be a prime acquisition target. Its performance has not improved in the most recent quarter, with PinkRoccade providing a market update at the time of the merger announcement, stating that the third quarter ended September 30, was, as expected, a weak quarter due to seasonal effects. Revenue was down marginally at E166.6 million for the quarter, and for the nine-month period, it was down 5% to E513.6 million. It will also take a charge of between E7 million and E10 million for restructuring measures.
Getronics reported its third quarter at the same time, announcing a net profit of E3 million for the three months ended September 30, compared to a loss of E20 million in 2003, on revenue that fell 9% to E541 million. Mr Wagenaar said: Market conditions remain mixed and Europe continued to lag the gentle market recovery seen in other geographies.
Mr Wagenaar has overseen a successful restructuring program of asset disposals and share issues at Getronics since coming in to rescue the company in 2003.
Mr Appleton meanwhile said the expansion of Getronics’ position in the UK and Netherlands markets was a key factor behind the acquisition. Our biggest market is the Netherlands, and we now think there is scope to expand in the market through application integration and management. PinkRoccade has clients with international operations that would find it difficult to grow with the company as they expand internationally, he said. We are dominant in the UK and Netherlands markets, which will leave us to examine partnership and acquisition opportunities in the USA in 2005.
Investors reacted positively to the news from PinkRoccade’s perspective, resulting in the company’s share price rising as much as 23% in morning trading. Getronics meanwhile, saw its shares fall almost 4% before recovering ground.
It is worth remembering that Getronics has a poor history in consolidating large acquisitions. The company acquired Wang Global in 1999, which almost drove the company into bankruptcy early last year after being crippled by debt relating to the $1.4 billion purchase. However, Mr Appleton said Getronics has learnt its lessons from past mistakes. We know PinkRoccade very well, and we are putting in integration teams, and Mr Wagenaar has experience of doing this, he said.
Getronics expects the closure of the deal to occur during the first quarter of 2005 subject to clearance from shareholders, regulators, and the trade unions.
