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Get Four
|  | OCTOBER 4, 2004
By Eric Wahlgren Is Capgemini Up for Grabs? [Page 2 of 2] TROUBLE FOR SALE? Another analyst, who declined to be named, also rules out any potential purchase by U.S. IT-services biggies. In addition to Atos, this analyst adds British Telecom and Japan's Fujitsu to the possible suitors list. Not to be dismissed, the analyst says, are German heavyweights Siemens Business Services and Deutsche Telekom's T-Systems. "The unifying thing is people want to get into the German market," says the analyst. "Why couldn't a German company decide to make an acquisition?" For now, no one is commenting on the speculation -- and not everyone thinks Capgemini is a walking bull's-eye. "Who would want to take over Capgemini?" says Bob Djurdjevic, president of Annex Research in Phoenix. "When you acquire something, you acquire the problems, not just the benefits." Deal or no deal, it appears that Capgemini is headed for more change. In its Sept. 9 press release, the board said CEO Paul Hermelin "intends to strengthen the senior management team in the near future." CFO William Bitan was replaced with insider Nicolas Dufourcq, who cut his teeth at Wanadoo, France Telecom's Internet arm. But analysts say Capgemini probably won't stop at the CFO switch. "I think they'll go further," says Olofsen. Some suspect even Hermelin's days could be numbered. "It's arguably surprising that he has survived as long as he has," says Crozier. PRESSURE IS ON. As Capgemini moves to fix its problems, one of the top priorities will be limiting the overruns on a number of contracts signed in 2001 and 2002, which the company describes as burdened by "terms that have proved difficult to meet." The miscalculations ended up costing Capgemini an $98.4 million charge in the first half. They stem from its tech-services business, which handles projects such as systems installation and application management. The pressure is on as the unit, which represents about 37% of first-half revenue, competes with nimble Indian outsourcing companies and others. Guichardaz says plans are afoot to reduce overruns to a more normal level -- 2% of turnover -- within 12 months. Also key for Capgemini, analysts say, will be reviving its fortunes in North America, where revenue saw a 22% drop (at constant exchange rates) in the first half, due to "a weak level of bookings" in the second half of 2003. The region represented 30% of 2003 sales, Olofsen says, adding: "It's obviously quite a substantial business for them." In the Sept. 9 release, Capgemini said it was seeking to reenergize its North American operations. Overall, Capgemini reported a 50% wider net loss of $166 million in the first half of 2004, vs. the first half of 2003, on 7.1% lower revenues of $3.65 billion. The company says it's going to take other measures such as cutting costs further and shuttering money-losing nonstrategic units. "SEXIEST DEALS." Capgemini has its bright spots. The U.S. market should start to pick up, thanks to a $3.5 billion outsourcing deal inked with Dallas-based energy company TXU (TXU ) in 2004, says Djurdjevic. He calls the 10-year pact the first "megadeal" in the U.S. won by a foreign-based IT services company, saying: "They have scored probably what is one of the sexiest deals in IT services." Also looking up is Capgemini's unit for small and midsize businesses, Local Professional Services, which now represents 17% of revenues. Already Capgemini's most profitable, the division has strong growth prospects. Until recently, IT-services outfits have spent most of their energy going after big customers. The small-to-midsize field "is pretty rich," says Djurdjevic. "And nowhere is the opportunity greater than in Europe, which is their home turf." On the order-book front, the news is also encouraging. As of June 30, Capgemini had $15.50 billion in booked orders, more than double what it had chalked up at this point in 2003. NO BASKET CASE. Indeed, the main headache is the tech-services unit and its overheads. The remaining two-thirds of the business is pretty solid, analysts say. "It's important to remember that the outsourcing business and consulting business are doing slightly better than O.K.," says WestLB's Crozier. Though that's hardly glowing praise, Capgemini is far from a basket case. Indeed, it appears more likely to be on the mend. Hermelin expects double-digit revenue growth in 2004's second half. That means any potential suitor will have to move fast.
 Wahlgren is a reporter for BusinessWeek Online in Paris Edited by Beth Belton Get BusinessWeek directly on your desktop with our RSS feeds.  Add BusinessWeek news to your Web site with our headline feed. Click to buy an e-print or reprint of a BusinessWeek or BusinessWeek Online story or video. To subscribe online to BusinessWeek magazine, please click here. Learn more, go to the BusinessWeekOnline home page  | | |
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