(Bloomberg Opinion) -- Capgemini SE picked up some fellow travelers with its 3.7 billion euros ($4 billion) bid for Altran Technologies SA: a large cohort of minority shareholders who refused to accept the French IT group’s offer, including activist-in-chief Elliott Management Corp. Tuesday’s decent results from Altran diminished the prospect of these holdouts selling when the tender process reopens briefly next month.(1) That leaves Capgemini with the most basic form of control over Altran and a big thorn in its side.
Having guided that it wouldn’t raise the 14 euros-a-share offer made in June last year, Capgemini flip-flopped at the last minute and added a paltry half euro in January. That helped it secure acceptances of 54%, just above the threshold set for a takeover. Exclude the 11% holding Capgemini had already purchased from private equity firm Apax Partners SAS, and the other shares proffered amount to less than half of the remaining register. That indicates widespread unhappiness with the terms.
Elliott has a 15% holding. The precise composition of the remaining one-third of the register is unclear. Many long-term Altran shareholders sold in the seven-month battle, so it’s likely that the “remainers” include merger arb funds. Such investors would be hoping for the chance to get a higher price for their shares in the future than Capgemini was offering. If so, that would make Altran a special case: Arbs don’t normally hang around after extracting a sweetener.
A lucrative buyout is some way off. Capgemini said it wouldn’t make an offer to minorities above 14.50 euros a share price for 18 months. A sudden dip in Altran’s performance would make that price more attractive. But there were no shocks in its latest numbers; Altran shares currently trade at just over that level.
Capgemini still has good reason to seek 100% ownership. As things stand, it cannot fully integrate Altran but must run it as a separate entity. It will be under pressure to show that it’s not managing operations for its benefit at the expense of other shareholders. It may be able to reap some revenue synergies, but the benefits from the transaction will fall short of their full potential.
What has Capgemini achieved? Its shares jumped 8% on the day the deal was announced last year, reflecting the strong financial and industrial logic of combining the firms. Those gains have since evaporated. Capgemini’s stock is now only slightly outperforming the French index.
Declarations of victory in this battle, from either side, will have to wait. Elliott and the minorities have a strong negotiating position if Capgemini moves to take full control in 2021. Capgemini has bought a controlling stake in Altran cheaply. As a parting gift from outgoing Chief Executive Officer Paul Hermelin to his successor Aiman Ezzat, it’s better than nothing. But Ezzat has his work cut out to prove he can extract value from this deal with scarcely more than half the shares.
(1) Approval for the deal is subject to a court challenge; Capgemini has indicated it will either refile its offer or reopen it to acceptances depending on the outcome.
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Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.
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