Atos deal to sell its legacy service business falls through

28 Feb 20244 mins
IT Consulting ServicesManaged Service ProvidersTechnology Industry

Atos ends talks with investment fund after failing to reach an agreement on the sale of its legacy managed infrastructure services business.

French IT services company Atos has put an end to its attempts to sell its ailing legacy managed infrastructure services business after failing to reach an agreement with a prospective buyer and will now have to glue the two halves of its business back together.

Exclusive talks with EP Equity Investment over the sale of the Tech Foundations business ended after the two parties failed to agree on deal terms and pricing. “We could not reach a mutually satisfactory agreement,” Atos group CEO Paul Saleh said in a conference call with press and analysts Wednesday. Neither party will pay a cancellation fee, and their only obligations will be to keep details of their negotiations secret.

Atos revealed the plan to split itself in two in 2022, after its larger rival, IBM, spun out its own managed infrastructure services business to form Kyndryl in November 2021.

Saleh hasn’t ruled out looking for another buyer, though, saying, “We will continue to consider strategic options for Atos for all of our assets in a way that best serves the interest of our customers, employees, and shareholders.”

Meanwhile, Atos will continue to operate both halves of the company, Tech Foundations and Eviden, as separate entities with a coordinated go-to-market strategy, he said.

Eviden includes the company’s transformation acceleration, smart platforms, cloud, digital security, advanced computing, and net zero transformation activities. The legacy Tech Foundations business manages hybrid cloud and infrastructure, digital workplace, digital business platforms, technology advisory and customized services.

Those responsible at Atos did not want to reveal why the negotiations ultimately failed, although financial news agency Bloomberg reported that the French state had raised concerns about selling a company that handles defense contracts to a foreign investor.

Tech debt

Atos is burdened with debts totaling almost €4.7 billion. The group announced that it wanted to talk to the banks about refinancing and debt restructuring. Most recently, the Atos management also did not want to rule out taking legal protective measures should the financial emergency situation worsen.

The sale of the Big Data & Security (BDS) division to Airbus, which has been under negotiation for several months, could provide relief. A price of between 1.5 and 1.8 billion euros is apparently being discussed. It is not known how far the negotiations have progressed.

However, the pressure on Saleh, who only took office in mid-January 2024 and replaced the unhappy Yves Bernaert, is likely to increase further. Behind the scenes, there has been a lot of trouble recently. On his departure, Bernaert spoke openly about differences of opinion between him and the Executive Board about “the way in which the strategy should be adapted and implemented”. Saleh’s predecessor only took up the post at the beginning of October 2023 and only lasted three months.

Saleh, who has been promoted from CFO to CEO, may not have much time left to steer Atos into calmer waters. Along with the admission of the failed sales talks, he announced preliminary financial results for 2023 during the conference call. Group revenue for 2023 totaled €10.7 billion (about $11.6 billion), up 0.4% year on year and in line with the company’s previous forecasts. Tech Foundations accounted for €5.6 billion of that, down 1.7% year on year, a situation he characterized as a “managed decrease.” Revenue from the Eviden half of the business rose 2.9% to €5.1 billion, growing a little faster than in the previous year.

Atos is delaying announcing its full results until March 20, as its auditors need additional time to review an independent business review report and complete their audit of non-cash goodwill impairment charges.

Saleh said he will provide more details of the company’s plans to coordinate the activities of Eviden and Tech Foundations at that time.