Thales' 4.8 billion euro bid for Gemalto gets thumbs up from investors

By Mathieu Rosemain and Cyril Altmeyer

PARIS (Reuters) - Shares in French defense electronics maker Thales (TCFP.PA) jumped more than 8 percent on Monday after chipmaker Gemalto (GTO.AS) accepted its 4.8 billion euro ($5.7 bln) takeover bid to create a leader in digital security.

Thales Chief Executive Patrice Caine, who made his move just days after Gemalto had knocked back a 4.3 billion-euro offer from French rival Atos (ATOS.PA), said on Sunday that Gemalto had agreed to the takeover.

Atos said it would not engage in a bidding war but would be open to further discussions with Gemalto should the Thales deal collapse.

Thales shares closed up 8.25 percent at 93.40 euros, while Amsterdam-listed Gemalto's shares ended 5.6 percent higher at 49.47 euros, just below Thales' 51 euro per share basic offer.

The planned merger highlights the increasingly blurred lines between industrial and software companies which are both vying for a share of the fast-growing digital security market as companies seek more online security.

"In terms of DNA, the two companies look much more alike," said Richard-Maxime Beaudoux, an analyst at Bryan, Garnier & Co.

"It's not a financial deal, which was the case for Atos. They gave it a try; it was opportunistic."

The French state is the largest shareholder in Thales, while state-owned bank Bpifrance is Gemalto's second-biggest shareholder. A French government source said Thales had told the Gemalto board that it was the better fit.

Under the deal, unanimously recommended by the boards of both companies, Thales will merge its digital assets with Gemalto to create a unit headed by Gemalto CEO Philippe Vallee.

TOUGH YEAR

Thales's proposed takeover ends a difficult year for Gemalto, which has made a series of profit warnings that hurt its shares and overshadowed its attempt to shift away from a slowing market for phone SIM cards toward security services such as data encryption and biometric passports.

"Our intention is to keep all of the assets in Gemalto's portfolio," Caine told analysts, suggesting that SIM card operations remained core alongside Gemalto's growing focus on cybersecurity.

He said he had been in talks with Gemalto for several months.

Thales forecast that Gemalto's revenues would grow 5 percent annually and said it expected Gemalto's EBIT margin to exceed its own within two or three years of the merger.

Thales and Gemalto said on Sunday that the digital security entity would generate sales of 3.5 billion euros - one fifth of Thales' total revenues - and pre-tax cost synergies of between 100 million and 150 million euros by 2021.

Vallee on Monday said he would stick to a plan to cut 288 jobs in Gemalto's struggling SIM card business in France.

"This plan is maintained," he told BFM business radio, adding that he would try to redeploy staff internally.

Caine later told a news conference that Gemalto's staff would have the opportunity to get jobs at French military shipyard Naval Group, which is part of Thales.

(Editing by Richard Lough/Jane Merriman/Susan Fenton)