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Private equity eyes IT play?
Defense Market Report
Exclusively for InvestorIdeas.com
By James Smith
October 24, 2006
Rumours are afoot that New York-based private equity firm Blackstone Group LP may make a play for French information technology services group Atos Origin SA. The company is a major provider of IT and business services to the European public sector, including the defense and security sectors.
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The rumours compelled the French company to make the following announcement on October 19: “Following suppositions relative to discussions on a potential takeover of Atos Origin, which certain media are reporting, the company wishes to clarify the fact that it is frequently subject to contacts with both industrial companies and equity funds, and that there are currently no active discussions which could be considered an agreement or justify any announcement.”
But the announcement does not mean that there is no deal in the offing.
If rising share price is indicative of an expected takeover, the jump from EUR38.29 on October 17 to a EUR43.20 close on October 20 may herald investor expectations of an acquisition.
Rumours are that Blackstone might be willing to pay in the range of EUR51 to EUR54 per share, which would value the company at someplace around EUR3.5 billion.
On October 23, Atos Origin was trading at EUR43.65, a far cry from its 52-week high of EUR65.15; the 52-week low was EUR33.45.
If the rumours are true, the deal would mark the return of private equity to the IT sector although Blackstone participated in a large transaction last month.
In mid-September, Blackstone led a consortium that included The Carlyle Group, Permira Funds and Texas Pacific Group that reached a US$17.6 billion deal for Freescale Semiconductor.
Under terms of the agreement, the consortium will acquire all of the outstanding Class A and Class B shares of Texas-based Freescale for USD40 per share in cash, representing a premium of approximately 36 per cent over Freescale's average closing share price during the 30 trading days ended September 8.
The rumoured Atos deal and the Freescale transaction represent activities involving companies that are not totally married to the defense sector – although both companies are players in that industry.
Credit rating agency Standard & Poor’s recently expressed optimism that companies in the defense sector would record solid near-term gains, citing ongoing military activity in the Middle East and elsewhere as well as the future threats imposed by terrorists and from North Korea as rationale for at least modest growth in US defense spending.
Analysts are keeping a keen eye on what might unfold in Washington regarding future defense spending – but fears of slower growth or no growth seem to be unwarranted, bearing in mind recent congressional approval of a US$448 billion 2008 Pentagon budget and White House requests for billions more in supplemental funds to support actions in Afghanistan and Iraq.
And, while investors with little stomach for the vagaries of things political might be spooked by the possibility of a less free-spending Congress emerging after the November 7 mid-term elections, there is no indication that the Democrats would try to pare the defense budget.
Disclaimer
James Smith is an independent columnist for this web site. James Smith may hold long or short positions in any of the stocks mentioned in this article and those positions can change at any moment.
InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not affiliated or compensated by the companies mentioned in this article. James Smith is a freelance writer. Nothing in the articles should be construed as an offer or solicitation or recommendation to buy or sell any specific products or securities. Past performance does not guarantee future results.
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