Atos contemplates fire sale as break-up plan falters

French IT services company Atos is floundering as it seeks to refocus its business. Negotiations over the sale of its legacy infrastructure services business are dragging on, and the company is contemplating the sale of more profitable activities such as its big data and security business to meet debt repayment obligations.

Last year, it announced a plan to execute an IBM/Kyndryl style split, spinning off its infrastructure services business as a company called Tech Foundations, and rebranding as Eviden the more modern remainder of the company, which includes its supercomputing, cloud computing, carbon accounting, and cybersecurity activities.

In August 2023, though, it took a different tack, saying it would sell Tech Foundations and its Atos brand to private investment fund EP Equity Investment rather than take it public.

Back then, Atos said it expected EPEI to pay €100 million (around $110 million) for Tech Foundations, and to take on €1.9 billion of Atos’ corporate debt, valuing the deal at around €2 billion.

Altering the deal

Five months later, though, EPEI is still haggling over the price it should pay and the amount of debt it should take on. In addition, EPEI is looking to escape a clause in the initial deal that would require it to take a €218 million stake in Eviden.

“It’s taking longer than we originally anticipated,” Atos Group CFO Paul Saleh said in a conference call with analysts and journalists on Wednesday. “There’s no certainty that an agreement can be reached.”

Under financial pressure to repay debts, Atos has just made the first of two allowed six-month rollovers of a €1.5 billion loan, which it will have to repay by January 2025 at the latest. It has billions in other obligations due in the next two years.

With EPEI unwilling to invest in Eviden, or to take on as much of the company’s debt as initially agreed, Atos is looking to raise capital in other ways, primarily by selling off even more of its activities than the $400 million target it announced in July 2023.

First on the chopping block is its big data and security (BDS) business, for which it has received an offer of between €1.5 billion and €1.8 billion from Airbus. It seems an odd match, but the businesses would complement some of the European aircraft manufacturer’s existing activities; it already has a cybersecurity business of its own, and manages vast quantities of data generated by its earth observation satellites. Another company has offered to buy just part of the BDS business.

As it considers which activities to dispose of, though, Atos must weigh the potential cash infusion against the risks. If it sells its most successful businesses, it’ll have nothing left to interest investors or employees. If it doesn’t, it may not raise enough money to satisfy creditors and keep the company running.

That is apparently a risk it’s considering. Buried near the bottom of the five-page statement Atos issued Wednesday is a stark warning: “Should the outcome of discussions with all its banks prove uncertain, the company does not rule out the use of available legal protection mechanisms to frame discussions with its creditors.”

French law includes a number of provisions to protect debtors, including the “procédure de sauvegarde,” which bears some similarities to a reorganization under Chapter 11 of the US Bankruptcy Code, allowing a company to continue operating while it reschedules its debts.

Asked during the conference call to explain exactly which mechanisms Atos might use, Saleh said only that the company has access to “other mechanisms to facilitate and accelerate discussions on the topic of refinancing,” but that for the moment there were no such discussions.

Another Atos representative, asked for clarification, said the company wouldn’t speculate about hypothetical scenarios.

One investor at least is still willing to bet on Atos. French digital transformation consultancy Onepoint bought its first stake in November 2023, and now owns 11.4% of the company — even though, with just 3,000 employees, it’s only one-thirtieth the size of Atos.

Leadership changes

Onepoint doesn’t yet have a seat on the board of Atos as a result of its investment, but it may get one soon; Atos said Wednesday it’ll “engage with its anchor shareholder Onepoint to discuss its governance demands.”

There are two vacant seats on the board, Atos also revealed Wednesday, as it announced the resignation of four of its 11 members and the appointment of only two replacements. It also announced the replacement of the staff representative on the board as the previous representative’s term of office had expired. Two other board members, including chairman Bertrand Meunier, stepped down in 2023.

In addition to the revolving cast in the board room, Atos has seen a succession of CEOs over the last few years. Long-standing CEO Thierry Breton left the company in 2019 to become France’s European Commissioner. He was replaced by then-CFO Elie Girard, who lasted until December 2022. His successor, Rodolphe Belmer was replaced after just seven months by Nourdine Bihmane.

Belmer’s departure followed a bitter dispute with activist shareholders, who unsuccessfully tried to appoint former SAP CEO Léo Apotheker, who spent an ill-fated year as head of HP, to the board.

Bihmane lasted three months in the top job before returning to his role as CEO of the future spin-off, Tech Foundations, making way in October 2023 for former Accenture executive Yves Bernaert to take over as CEO of Atos.

These are not the only changes at the top: CFO Saleh joined the company in August 2023, and board member Carlo d’Asaro Biondo, a former Google executive, took over as Atos’ group general manager in December 2023.

With so much churn at the top, it’s little wonder Atos is struggling to make progress with its break-up.

The IBM/Kyndryl example

The financial success of Kyndryl’s split from IBM may be another factor weighing against Atos. Since the two companies’ separation in November 2021, IBM’s stock price has steadily risen by around $40, while Kyndryl’s has fallen from $28.41 at launch to around $20, making legacy infrastructure management look like an unattractive investment.

Going its own way was supposed to enable Kyndryl to return to growth by exploring new and more profitable revenue streams. Two years on it continues to report year-over-year declines in revenue, although its losses are shrinking, too.

Nevertheless, Kyndryl is steadily transforming its business, multiplying its industry partnerships and expanding into the monitoring and management of more modern infrastructure with services such as its open integration platform, Kyndryl Bridge.

If Atos succeeds with its break-up plan, then Kyndryl’s experience suggests the work for internal IT staff at Tech Foundations will be only the beginning. Kyndryl CIO Michael Bradshaw spent the first two years following the split rebuilding the company’s ERP and HR platforms to function without IBM infrastructure, even as he reshaped systems to support the company’s new activity.