17 December 2017
Thales and Gemalto announce today that they have reached an agreement (the “Merger Agreement”) on a recommended all-cash offer for all issued and outstanding ordinary shares of Gemalto, for a price of €51 per share cum dividend.
Creation of a global digital security leader
Acceleration of Thales’s digital strategy
Over the past three years, Thales has significantly increased its focus on digital technologies, investing over €1 billion in connectivity, cybersecurity, data analytics and artificial intelligence, in particular with the acquisition of Sysgo, Vormetric and Guavus. The integration of Gemalto strongly accelerates this strategy, reinforcing Thales’s digital offering, across its five vertical markets (aeronautics, space, ground transportation, defence and security). Altogether, this new business unit will represent c. 20% of pro forma Group revenues and rank among the top three players worldwide, with €3.5bn revenues in the fast growing digital security market.
Unique and innovative technology portfolio in an IoT, Mobile and Cloud World
Combined with Gemalto’s unique leading digital security portfolio, Thales will be ideally positioned to offer an end-to-end solution, to secure the full critical digital decision chains, from data creation in sensors to real-time decision making. This unrivalled and innovative technology portfolio will put Thales in a highly differentiated position to provide enterprises and governments with a seamless response to the data security challenges that lie at the heart of their digital transformation.
Creation of a global leader in digital security and cybersecurity
By acquiring a global leader in trusted identities and data security, Thales adds over €3bn of revenue to its digital business sales and acquires a set of technologies and competencies that have applications in all of Thales’s five vertical markets. The combination creates a powerhouse with a solution portfolio including security software, expertise in biometrics and multifactor authentication and the issuance of secure digital and physical credentials. These technologies, which combine diverse and constantly evolving use cases, are expected to yield significant commercial opportunities and revenue synergies in the years ahead.
Both Thales and Gemalto are experts at addressing the needs of the most demanding clients who are facing data security challenges. These include all operators of critical infrastructures including banks, telcos, governments, utilities, and general industries. This combination will reinforce and further globalise Thales’s footprint.
Capacity to address all customer digital security needs
Thales will combine its digital businesses into Gemalto, which will continue to operate under its own brand as one of the seven Thales global business units. Both the Thales and Gemalto management teams share a common industrial vision and endorse the growth project of this newly created digital security global business. Philippe Vallée will lead the combined digital security business.
R&D: the common DNA of Thales and Gemalto digital businesses
Gemalto and Thales are technology-driven companies with world-class R&D capabilities and an extensive patent portfolio. R&D is at the core of Thales’s and Gemalto’s digital security businesses, and will remain so. The combined Group will have more than 28,000 engineers, 3,000 researchers, and invests more than €1bn in self-funded R&D.
A combination providing enhanced opportunities to Gemalto’s employees and management
Thales does not anticipate any reduction in Gemalto’s workforce as a consequence of this transaction.
Employees who are included in the current Gemalto efficiency program are immediately offered access to Thales’s internal job boards and to the Thales internal mobility mechanism under the same conditions as Thales’s employees. Furthermore, Thales has committed to preserve employment in Gemalto’s French activities until at least the end of 2019. Thales recruited 6,000 people worldwide in 2017, and will actively pursue its human capital investments in the future.
An attractive offer to Gemalto shareholders
Thales offers €51 in cash per Gemalto share cum dividend. The offer price represents a premium of:
57% over the closing price as of 8 December 2017
56% over the 1-month volume weighted average price
48% of the 3-month volume weighted average price
Implied EV/2018E EBIT of 17x
Significant value creation for Thales shareholders
Gemalto is well advanced in its transition from its historical markets to the fast-growing Government, Enterprise security, and Industrial IoT markets, with significant growth potential both in revenue and margin terms.
In addition, Thales estimates that the combination will generate run-rate pre-tax cost synergies of €100m to €150m by 2021, as well as meaningful revenue synergies.
The transaction will generate mid to high teens adjusted EPS accretion, pre synergies, as of the first year post closing. The acquisition’s return on capital employed (including synergies) will exceed Thales’s cost of capital within 3 years following the closing of the acquisition.
Illustration Photo: Iris scan (CC0 Creative Commons from Pixabay.com)