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Atos Plans To Buy Syntel For $3.57B In Solution Provider Megadeal

Michael Novinson

July 23, 2018, 09:59 AM EDT

Atos plans to buy Syntel for $3.57 billion to massively expand the solution provider's North American footprint and increase its capabilities around financial services.

The Paris-based company, No. 22 on the 2018 CRN Solution Provider 500, said its proposed purchase of Troy, Mich.-based Syntel, No. 39 on the 2018 CRN Solution Provider 500, will enhance its offerings around cloud, social media, mobile, analytics, IoT, and automation. These emerging technologies account for roughly 40 percent of Syntel's $923.8 million in annual sales.

"The highly complementary portfolio, customer base, and geographic footprint of the combination between Atos and Syntel will significantly enhance our presence in North America and accelerate the digital transformation of Atos’s customers worldwide," Thierry Breton, Atos chairman and CEO, said in a statement.

Atos has agreed to pay $41 for each of Syntel's roughly 83.6 million outstanding shares, which represents a 4.8 percent premium over Syntel's closing price Friday of $39.13. Syntel's stock is up $1.42 (3.63%) to $40.55 in pre-market trading Monday on the Nasdaq stock exchange, while Atos's stock is down $9.38 (6.5%) to $134.96 on the Euronext stock exchange Monday afternoon.

The board of directors of Atos expressed unanimous support for the acquisition Friday, while shareholders possessing 51 percent of Syntel's outstanding shares have entered into written agreements to vote in favor of the Atos acquisition. The $3.57 billion transaction value includes Syntel's net debt, and is expected to close by the end of 2018.

"This is a very exciting development for Syntel," Bharat Desai, Syntel's co-founder and co-chairman, said in a statement. "The Syntel board is committed to maximizing shareholder value and believes that the agreement with Atos achieves that objective and delivers a win-win proposition to our customers and employees."

Cross-selling opportunities to the combined company's European and U.S. customer bases are expected to generate $250 million in revenue synergies by 2021. And from a profitability standpoint, the deal is expected to provide a double-digit boost to the combined earnings per share as early as 2019.

Specifically, the combined company plans to generate revenue synergies from: selling Syntel's digital services, intelligent automation and IT modernization into Atos's North American and European clients; leveraging Atos's cybersecurity, big data, infrastructure and data management, and services capabilities for Syntel's client base; and capturing large end-to-end digital transformation projects globally.

Some $120 million of annual cost savings are expected by 2021, coming from general and administrative expense optimization by taking advantage of the combined scale, as well as the alignment of KPIs in Atos's business and platform solutions division, the companies said.

As part of the deal, Syntel CEO Rakesh Khanna will become a member of Atos's executive committee.

All of Syntel's executive team is expected to join Atos, with the company offering retention letters to Khanna, co-chairman Prashant Ranade, CFO and CISO Anil Agrawal, and Chief Administrative Officer, General Counsel and Secretary Daniel Moore, that provide bonuses on the date the acquisition closes as well as on the six-month anniversary of the closing date.

Nearly 90 percent of Syntel's revenue in the company's most recent fiscal year came from North America. However, nearly 80 percent - 18,000 of 23,000 - of Syntel's engineers are based in India.

Once the deal closes, Atos will gain significant scale in its North American Business & Platform Solutions Division, allowing the company to offer existing clients high value-add digital services in verticals such as banking and financial services, healthcare, retail, logistics, manufacturing, and insurance. Atos will also boost its margin profile in North America.

The proposed Syntel acquisition comes less than four years after Atos purchased Xerox's IT outsourcing business for $1.05 billion. Buying the $1.5 billion, 9,800-employee entity nearly tripled the size of Atos' operations in the United States, with Atos becoming a primary IT services provider for Xerox and taking on its IT outsourcing customers.

Late last year cybersecurity vendor Gemalto rejected Atos's $5.05 billion acquisition attempt in favor of a $5.63 billion purchase offer from French electrical system builder and services provider Thales Group.