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Atos shares rebound briefly as biz decides acquiring DXC is probably not worth the bother

HPE cut off its own arm to escape infrastructure services

Atos shares spiked this morning after it confirmed that negotiations to purchase DXC Technology are dead in the water.

An audacious bid, reported to be in the region of $10bn, was made by the French integrator-cum-outsourcer in the first week of January, representing a move away from the typical bolt-on deals Atos funds.

But it wasn't to be, Atos confirmed to the Paris stock market this morning. "The Board of Directors at Atos has unanimously determined not to pursue a potential transaction with DXC Technology."

Shares in Atos went up 7 per cent after the announcement before falling back again, indicating that investors weren't really keen on the idea either.

Official word came from DXC last night in after-hours trading when it said that talks with Atos had ended.

"The offer was determined to be inadequate and lacking certainty in light of the value the board believes DXC can create on a standalone basis by executing our transformation journey," stated DXC.

"After sharing certain high-level information in order to help Atos understand why the board believes the proposal undervalued DXC, Atos and DXC to agreed to discontinue further discussions."

DXC's share price was down 9.61 per cent at the time of writing so maybe investors on that side wanted to see a tie-up.

The purchase of DXC, which is this week due to reveal its third-quarter financial results for fiscal 2021, would have been a mouthful for Atos.

DXC turned over $9.05bn in the half-year ended 30 September 2020 and reported a pre-tax loss of $531m. Atos turned over €5.627bn in the first half of calendar 2020 for operating income of €450m.

A deal would have bolstered Atos's scale in consulting and infrastructure services; given access to more blue chip clients; and a greater foothold in the US. Conversely, it would have presented sizeable integration challenges, taking on a business that is itself trying to grow beyond infrastructure outsourcing services in a world where customers are rapidly converting more workloads to cloud services.

Infrastructure services is a relatively low-margin area of the technology industry, one that IBM is looking to escape and Hewlett Packard Enterprise fled in 2017 when it spun out its Enterprise Services division to join forces with CSC and create DXC. ®

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