Shares in beleaguered French IT company Atos fell around 12% on Tuesday following the announcement of a rescue deal that will result in a major dilution of existing shareholders. The significant drop in share price reflects investor concerns about the impending dilution and the overall financial health of the company.
Rescue Deal Details
Atos revealed that it would proceed with a proposal from major shareholder David Layani. Layani’s IT firm Onepoint held around 11% of Atos’ share capital and voting rights as of December 2023, according to its website.
Atos was also considering a rival offer from Czech billionaire Daniel Kretinsky. The decision to go with Layani’s proposal underscores the strategic alignment and confidence in the proposed capital structure.
Despite the decision, the deal will lead to a significant dilution of existing shareholders, who are set to hold less than 0.1% of share capital once the deal is completed. Atos emphasized that Layani’s deal includes a stronger capital structure and provides the firm with sufficient financial liquidity to stay in business.
This dilution is a substantial hit to current investors but is seen as necessary to stabilize the company’s finances.
Financial Structure and Support
Atos stated, “The proposal submitted by the Onepoint consortium also has the support of a large number of Atos’ financial creditors and thus gives greater confidence that a definitive financial restructuring agreement will be reached.”
Layani, on Tuesday, expressed optimism about the deal, stating that the partners aimed to improve Atos’ balance sheet and ensure that the company becomes a major international player in the tech sector, according to Reuters.
Deal Partners and Implementation
Layani’s deal is fronted by Onepoint, investment company Butler Industries, IT company Econocom, and some of Atos’ financial creditors. The implementation of the deal is expected by July.
This consortium of partners brings a wealth of industry expertise and financial backing, which could be instrumental in turning around Atos’ fortunes.
The deal’s execution will likely involve significant restructuring efforts within Atos to streamline operations and focus on core profitable segments. This might include divestments, cost-cutting measures, and strategic investments in high-growth areas.
Atos’ Current Projects and Financial Struggles
Atos is managing data and cybersecurity for the Paris 2024 Olympics and holds various sensitive contracts with the French military and other authorities. These high-profile projects underscore Atos’ strategic importance but also highlight the risks associated with its financial instability.
The company has been grappling with financial troubles, including soaring debt, with its net debt standing at 3.9 billion euros ($4.2 billion) at the end of the first quarter.
This substantial debt burden has been a significant factor in the company’s struggles, affecting its ability to invest in growth and innovation.
Previous Discussions and Offers
Atos has been in discussions about various deals throughout its financial hardships, with several major companies, including Airbus, showing interest. Earlier this year, Atos also mentioned receiving a letter of intent from the French government to acquire parts of its business.
These discussions highlight the strategic value of Atos’ assets and the potential for parts of the business to be spun off or sold to raise capital.
The selection of Layani’s proposal over Kretinsky’s indicates a preference for a strategic partnership that offers operational synergies and a clear path to financial stability.
Rescue Deal Provides a Lifeline
In summary, while the rescue deal with Onepoint and its partners leads to significant dilution for existing shareholders, it provides a lifeline for Atos in its time of financial crisis.
The support from major creditors and the strategic vision laid out by Layani and his partners offer a path forward.
However, the road ahead is fraught with challenges, including the need to stabilize operations, manage high-profile contracts, and restore investor confidence. If successful, this restructuring could position Atos for a strong comeback in the tech industry.
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