Atos buys Siemens' IT division for third of market rate

Siemens' IT Solutions and Services division is a good deal for both companies, say analysts

Atos Origin has purchased Siemens' IT Solutions and Services division for €850m (£725m), half the price that was set for it five years ago and about a third of the going rate for this type of division, according to analysts.

The move will create a leading IT services company with pro forma 2010 revenue of about €8.7bn, with 78,500 employees worldwide.

The deal has seen Atos effectively cherry-picking the best part of what has always been a loss-making division, purchasing only 90 per cent.

The remaining 10 per cent has been left with Siemens but accounts for just 0.1 per cent of the group's revenue, and so is not significant.

Siemens has also agreed to hold a 15 per cent stake in Atos Origin for at least five years. The shares are worth about €414m.

In addition, it will receive a five-year convertible bond of €250m and a cash payment of just €186m.

Siemens also announced that it has concluded a seven-year outsourcing contract with Atos Origin worth about €5.5bn, under which Atos will operate Siemens' IT infrastructure and applications worldwide.

The combined company will offer cloud computing services, system integration solutions and enhance its electronic payments and transaction-based activities.

Tim Daniels, TMT strategist at Olivetree Securities, said of the deal: "It is not very often that we see an acquisition like this that appears to make sense for both sides; both parties could win here. Siemens' IT arm SIS is a loss-making business which Atos has taken into account by paying only half of the price set five years ago and about a third of the current market rate.

"Although it's a loss-making division, Atos has bought it for a bargain basement price. Atos has experience of turning around poorly performing divisions following its purchase of Philips' internal IT services business Origin several years ago.

"Siemens will benefit because although the division accounted for less than five per cent of group revenue, it took up a disproportionate amount of management time and effort and is not core to the business.

"Basically, this purchase is a steal of a deal," Daniels concluded.