Atos is to acquire France-headquartered technology vendor Bull for €620m in an all cash transaction. Atos offers €4.9 per Bull share, a premium of 22% over May 23’s closure price of €4.01. The offer is conditional on Atos receiving 50% and 1 shares. The largest shareholders of Bull, Crescendo Industries and Pothar Investments, which own a 24.2% stake in Bull, have agreed to participate to the public offering. The offer has been approved unanimously  by the Board of Directors of Bull. Atos is to file for the offer by June 2, 2014. Expected closing of the public offer is to end by mid- to end of August. Once the public offering completed, Atos is either to proceed to a mandatory squeeze-out procedure (if Atos owns 95% of shares) or merge with Bull.

Bull had 2013 revenues of €1,262m and an adjusted EBIT of €45m, a margin of 3.5%. It had a net cash position as of end of 2013 of €213m. Headcount is ~9k, of which 5k in France. It would bring to Atos a tax loss carry-forward of ~€1.9bn (mostly for its French and German operations), which Atos is currently examining.

Bull has a very wide portfolio of offerings ranging from hardware, software and services. It also has a vast geographical presence with operations in 50 countries. The company has a portfolio of 1,900 patents of which 600 in the U.S. Bull spends 6% of revenues in R&D and employs 700 R&D personnel. 

The company was until 2013 aligned around three main business units:

• Innovative products & computing solutions (e.g. higher performance computing servers, and related services, IT infrastructure management including hosting and cloud computing) €820m (-1.9%)
• Business integration solutions (e.g. C&SI and AM): €312m (-4.6%)
• Security solutions (security and critical systems design and architecture, consulting and integration): €130m (+5.9% y/y).

The company recently announced its 'One Bull' program to re-balance its portfolio (around complex systems integration, high performance computing, security and big data), reduce its cost structure and simplify its personnel contracts (with notably the standardization of contracts and internal mobility). Part of the One Bull program also relied on divesting geographical operations where Bull was breaking even or loss-making or transforming then. Overall Bull, expected 2017 revenues to remain at the same level as 2013 but its adjusted operating margin to double to 7.0%.

Service capabilities brought by Bull include:

• Consulting & systems integration:
  - Specialized defense services (including the Scorpio project with the French Army Scorpio program)
  - Legacy modernization capabilities
  - Presence in Poland and Brazil
• Managed services:
  - Hosting (Agarik)
  - Maintenance and support of third party technology products from EMC, other and own Bull products as well as datacenter, server and storage consulting services around IBM, EMC and Intel products
  - IT infrastructure management: Bull was awarded by ErDF in 2013, along with Osiatis/Econocom a Microsoft Exchange, SharePoint and Lync project with 160k users
  - IaaS: Bull also owns a JV, Numergy, with SFR and CDC, which targets SMBs (€6m in revenues expected by 2014), whose services it marketed under the Le Cloud brand
  - Datacenter, server and storage consulting and integration capabilities
• Big data: higher performance computing high end hardware, as well as entry-level Bullion appliances
• Security: software products (Evidian line of software products).

Atos is to:

• Integrate the different units of Bull into its own Consulting & Systems Integration, and Managed Services units
• Move the cloud computing capabilities of Bull into Canopy
• Move to Bull its own security and big data capabilities and marketing them under the Bull brand.

Overall, Atos is expecting 1% organic growth through cross-selling and a more dynamic service portfolio resulting from the acquisition.

Atos is estimating cost synergies to €80m, of which:

• €30m from One Bull program (which it plans to execute in 24 months, rather than the 30 months planned by Bull)
• €30m G&As (with Bull having a ratio of G&As to revenues of ~25% before the effects of One Bull and Atos targeting by 2014 G&As in the 9.5% - 10.0% range)
• €20m in hardware procurement and real estate savings.

Atos is to:

• Reconsider the Bull’s divestment plans in several geographies (apart from operations representing €25m in revenues in 5 countries). Atos has highlighted it has critical mass in countries where Bull had high overheads and will help improve costs
• Accelerate profit improvement in its French unit, Bull adds €690m in revenues in France and Atos is expecting the additional scale to help improve its own financial performance in the country
• Spend €100m in restructuring costs, of which €50m to €60m, will be accrued in the accounts of Bull before the acquisition.

After the acquisition, Atos will have pro-forma revenues of €9.9bn, of which

• Cloud services: €392m
• Big data and security: €490m
• Managed Services: €4,690m
• Consulting & systems integration: €3,190m
• Worldline: €1,115m.

​From a financial perspective, Atos is making an expensive acquisition. The €620m values Bull (based on its 2013 performance) at a PER of 41. The company has a history of flat revenue growth and limited net margin (net margin of 0.8% in 2013). However, Bull is financially sound with a net cash position of €213m. 

The stated rationale for the acquisition has centered on cloud computing, big data and security, (35% of revenues of Bull, including hardware and software). Yet, Bull brings a very wide portfolio that includes computing products, a legacy mainframe product and OS base, as well as security software products. Thierry Breton, CEO of Atos is a former Bull CEO and he therefore must have a strong opinion on what Bull could bring to Atos. One big question mark is to understand what is left of the legacy products into Bull's current offering: NelsonHall estimates it at ~€200m. Also, the HPC line of products (NelsonHall estimated: €170m in revenues) seems to have been successful but requires significant R&D effort. We therefore expect divestments targeted around non-core hardware elements, and potentially software. Bull would reduce Atos' dependence on IBM or HP hardware, potentially making it more price competitive in cloud deals.

The impact of the €1.8bn tax carry forward element is to be fully understood. It may represent a significant tax reduction incentive in its French and German operations for Atos.

Atos' management continues to pursue a very bold M&A strategy: buying Bull, maintaining its offer for Steria, and ready to use the forthcoming June IPO of Worldline for acquisitions in the payment sector. Meanwhile, Atos remains committed to growing in the U.S. With Bull, Atos is now almost the size of Capgemini: something that was unlikely several years ago. There is no question that Thierry Breton has brought Atos to the European tier-one league. Logical next steps for the company are expansion in the U.S. market and the adoption of a sizable India-centric delivery model.