January 28, 2020

Breakingviews: Capgemini victory over Elliott comes with baggage

by Breakingviews.

Paul Hermelin’s triumph is not without cost. The chief executive of Capgemini has won a $4.1 billion bid to take control of Paris-listed peer Altran Technologies, despite opposition from Elliott Advisors. Still, the New York-based activist has the power to block a full takeover. That leaves Hermelin’s successor with a potentially nasty integration headache.

Give Hermelin his due. The softly spoken boss of the $22 billion IT consultancy wisely sacrificed principle for expediency when he broke a self-imposed pledge to not budge from his original 14 euros a share bid back in June. By adding a mere 50 cents, or around $140 million, Hermelin was able to claim his prize. As a bonus, he faced down the obstreperous Elliott, which cited research claiming 17 euros represented a fairer offer.

True, capturing 54% of Altran’s share capital is above the majority threshold Hermelin wanted. But it hardly represents a ringing investor endorsement of a deal in which Capgemini supplies the consultants and Altran the engineers to build the factories of the future. Moreover, Capgemini still faces a Paris court of appeal judgement in March which, if it loses, means it could have to re-launch the offer. In the interim, it has pledged not to begin integrating the two companies nor change Altran’s board.

On Monday, Hermelin reiterated that, if he loses, he would not go beyond the current 14.50 euros per share price. But that is not legally binding. More importantly, Elliott’s roughly 15% stake in Altran can block a full takeover and delisting, adding expense. Capgemini’s original one-third premium to Altran’s volume-weighted average share price over the previous three months has arguably shrunk due to buoyant markets. If equities remain robust and Altran reports vigorous full-year results next month, then the New York-based activist may still have some ammo to demand a higher price.

Whatever happens, Hermelin probably won’t be around to deal with any fallout: He’s retiring as CEO in May. That leaves his successor Aiman Ezzat, currently chief operating officer, to tussle with Elliott in addition to making the Altran acquisition work. It’s hardly the ideal leaving present.

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