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Get Four
|  | OCTOBER 4, 2004
By Eric Wahlgren Is Capgemini Up for Grabs? Some analysts think so, given the stock's recent downturn and what seem to be the IT-services outfit's solid prospects for a comeback Capgemini, one of Europe's biggest information-technology services companies, is in a bit of a funk. While rivals are starting to benefit from the slow but steady pickup in IT spending, the Paris-based multinational has performed lately like it's still in tech-bust times. The latest disappointment? On Sept. 9 Capgemini announced a surprising $24.6 million operating loss -- a profit had been expected -- for 2004's first half, due in part to major contract overruns. Wasting no time, the board that same day said its chief financial officer was being replaced. The stock dropped 13% on the Paris bourse. Since then, Capgemini shares have basically flat-lined, closing on Sept. 29 at $24.35 -- more than 50% off their 52-week closing high of $55.37 on Nov. 3, 2003. NOW OR NEVER. The decline is leading to speculation that Capgemini, which itself gobbled up the consultancy arm of U.S. accountant Ernst & Young in 2000, may be one of the Continent's top takeover targets. With the global economy improving, analysts are betting on consolidation in Europe's tech-services sector. Many of the top players are itching to expand their reach. Plus, competition from Indian upstarts is forcing more established outfits to broaden their offerings while simultaneously cutting costs, no easy task. "If Capgemini isn't a takeover candidate now, it never will be," says Jonathan Crozier, a technology-research analyst with WestLB in London. Crozier notes that Capgemini's stock fell to lower levels in 2002, when the entire industry was in a downturn. But now that the outlook is brightening, "the company is attractive." The drop in Capgemini's stock has reduced its market cap to about $3 billion. Still, analysts say that any acquirer would have to pay a hefty premium of 30% to 40% or above that. Capgemini spokesman Philippe Guichardaz declined to comment, saying the outfit has a policy of not remarking on market rumors. NATIONAL CHAMPION. Several analysts believe Capgemini, whose stellar list of U.S. and international clients includes Ford (F ), Airbus, ChevronTexaco (CVX ), and Sprint (FON ), could be in play. The multibillion-dollar question: Which rival might be preparing a bid for the outfit, which has 55,000 employees and posted 2003 revenues of $7.08 billion? Analysts think the usual suspects -- IBM (IBM ), Hewlett-Packard (HPQ ), and Computer Sciences (CSC ) -- may no longer be interested. Why? Peter Olofsen, an analyst with Effectenbank Stroeve in Amsterdam, doubts U.S. companies are in the market for another multinational that already has a presence on their home turf. About 30% of Capgemini's 2003 revenues came from the U.S. Says Olofsen: "I think they would look for a national champion or a strong player in a market where they want to grow their presence." Instead, company watchers believe that if any deal occurs, it will likely involve a name closer to home. Crozier thinks Atos Origin, a French IT-services group, would be a likelier buyer. In contrast with Capgemini, the Paris-based group's first-half operating profit rose 29%, to $194.7 million, on 72% higher revenues of $3.26 billion. "Atos Origin is the most obvious predator," says Crozier. "It's a company with a stated ambition to keep growing." Such a move by Atos, says Crozier, would double its size in Italy, Spain, and most important, Germany, which is considered by many observers to be Europe's most prized tech-services market.
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