Siemens and Atos Origin announce £721m deal

Atos Origin has announced it will acquire Siemens IT Solutions and Services (SIS) division for €850m (£721m) and the two companies will become strategic partners in order to create a "European IT champion".

The deal will see Siemens receiving 12.5 million Atos Origin shares worth €414m as well as a convertible bond of €250m and a cash payment of around €186m for its SIS division.

The deal is expected to be completed by July next year at which point SIS will become part of Atos and the two companies will then work together as one to offer managed IT services to businesses across the world, possibly under a new name.

The co-op will make them one of the largest IT service companies in the world and the company expects to generate revenues of between €9bn and €10bn by 2013, with operating margins of around seven to eight per cent.

There will be a combined workforce of 78 500 staff in some 42 countries and both companies have also agreed in invest €50m each in the development of new IT products for sectors such as healthcare, energy, transport and manufacturing.

However, the firms revealed that they expect to reduce Siemens' SIS division by some 1,750 workers from locations around the globe, with at least 650 in Germany already earmarked.

As part of the deal, Atos Origin and Siemens also announced they had signed a seven-year contract worth €5.5bnn (£4.69bn) to operate Siemens' IT infrastructure and applications worldwide.

Analyst Clive Longbottom from Quocirca said he thought it was an interesting deal that made sense for both firms.

"Siemens as a vendor had little where SIS could be brought into play – unlike HP, IBM and even Dell. It had the choice of either trying to completely sever SIS from Siemens and going it alone or finding something that made sense, " he said.

"Atos has been struggling with a perception of only being a local play in some parts of Europe, and needed to do something to make itself a powerhouse that could play with the big boys. Therefore, such a tie-up makes sense for both parties."

He added though that with two completely different structures and approaches being brought together it remained to be seen whether it would be a smooth merger, as well as who would get the main positions post-merger.

Longbottom also predicted that there could well be more deals of a similar nature next year as companies aiming to compete with major players in this market look for inorganic growth in order to do so.

"As IBM and HP get bigger, others have to be able to compete more effectively. Expect more of these sorts of deals through 2011 as more regional plays get acquired by those with more global perspectives," he added.