Analysis | Macron Tech Champion Atos Faces Brutal New M&A World

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It’s always best to fix the roof when the sun is shining, they say. Then you have Atos SE, which is facing the financial equivalent of trying to build an ark after the flood has already hit.

More pain is to come for the French tech company, which is strategically important for President Emmanuel Macron’s government.

Atos’s announcement on Tuesday that it planned to split itself in two – separating legacy infrastructure activities from a faster-growing cybersecurity and cloud business – looked like a welcome and necessary shift, similar to past moves by the likes of International Business Machines Corp. 

But the absolutely brutal market reaction, with shares slumping 23%, shows the cost of having delivered too little in the past and demanding too much trust in the future. The breakup will take time and money, requiring total funding of 1.6 billion euros ($1.7 billion) through 2023. There’s also the execution risk, after the abrupt announcement that Chief Executive Officer Rodolphe Belmer is leaving. “Costly, painful and drawn out,” is how Bloomberg Intelligence’s Tamlin Bason describes it.

Investor faith in the board and management’s ability to deliver this kind of overhaul was already hanging by a thread. The decline in Atos shares began in 2021, when a string of dire results and revelations of accounting errors cost Belmer’s predecessor his job and saw the company bumped from the blue-chip CAC index. 

Instead of speeding up a much-needed digital transition to the cloud, things seemed to drift as internal splits over governance and strategy widened. Back in February, Atos ruled out selling off crown jewels like its big data and cybersecurity division in favor of a new turnaround plan — yet disagreements on this very question between Chairman Bertrand Meunier and outgoing CEO Belmer reportedly kept raging.

The thread has now snapped. Atos’s current market valuation is 1.5 billion euros, a humiliating plunge for a firm worth 13 billion in 2017. It trades at a 60% discount to the value of its assets, and at a fraction of its 10.8 billion euros of annual revenue.

The huge disconnect between investors and management is a sign of a distinctly nasty new world for Atos, and companies like it trying to pull off expensive and complex corporate overhauls. Rising interest rates mean cheap finance is a thing of the past. Plans to sell 700 million euros of assets will come at a cost — Atos this week sold its remaining stake in payments firm Worldline SA at a 5% discount.

A gloomier economic environment makes it harder to be optimistic about growth prospects. Morgan Stanley analysts fear a slowdown could put pressure on the faster-growing business being spun out of Atos, which is eyeing 7 billion euros in revenue by 2026, up from 4.9 billion last year. Atos is also warning investors to expect profit margins this year at the low end of guidance. 

Atos is a strategic player in the French corporate landscape, having contracts with the country’s atomic agency, access to sensitive government data and business with foreign-policy partners like India (where Atos is building a supercomputer). Political interference is highly likely, given the importance of tech sovereignty for Macron and European Commissioner Thierry Breton — who ran Atos for a decade before moving to Brussels in 2019. His time at the helm no longer looks quite so glorious internally.

It would be ironic indeed if Atos’s much-needed recipe for independence and survival ended up hastening the fall of key businesses into the hands of a state-backed buyer like Thales SA or Orange SA. But it would only be one hint of the brutal new world that awaits companies today.

More From Bloomberg Opinion:

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• Billionaire Drahi Enters the FTSE Hotel California: Chris Hughes

• Why Did a Fund Chief Call Private Equity a `Ponzi’?: Shuli Ren

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.

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