Gemalto Spurns Atos Offer, Opts Instead For $5.63B Takeover Bid From French Conglomerate Thales

Gemalto has rejected Atos's $5.05 billion acquisition attempt in favor of a $5.63 billion purchase offer from French electrical system builder and services provider Thales.

The Paris-based conglomerate and Amsterdam-based Gemalto agreed Sunday to a deal that will create the world's second-largest cybersecurity player well-positioned to address IoT, cloud and mobile security challenges. Gemalto is allowed to terminate the agreement if another company makes a bid that exceeds Thales's offer price by at least 9 percent, though Thales would be allowed to match the offer.

"We have a tremendous respect for Gemalto's technological achievements, and our two groups share the same culture and DNA," Patrice Caine, Thales's chairman and CEO, said in a statement. "By combining our talents, Thales and Gemalto are creating a global leader in digital security."

[RELATED: Atos Proposes Buying Gemalto For $5.05B To Create A Cybersecurity, IoT and Payment Powerhouse]

Since the deal was announced, Thales's stock has jumped $8.05 (7.89%) to $110 per share, while Gemalto's stock has leapt $3.16 (5.69%) to $58.49 per share. Thales offered to purchase Gemalto for $60.27 per share, or a 57 percent premium of the company's Dec. 8 closing price of $38.41 per share.

Atos made an unsolicited offer on Dec. 11 to acquire Gemalto for $54.07 per share, and gave the company until Dec. 15 to decide whether or not to accept it. But Gemalto passed on the offer late last week, arguing it significantly undervalued the company and failed to provide a compelling go-forward strategy.

"I am convinced that the combination with Thales is the best and the most promising option for Gemalto," Philippe Vallee, Gemalto's CEO, said in a statement. "We share the same values, and Gemalto will be able to pursue its strategy, accelerate its development, and delivery its digital security vision as part of Thales."

The acquisition is expected to close in the second half of 2018, and Thales has committed to preserving employment in Gemalto's French operations until at least the end of 2019. Although Thales doesn't anticipate any reduction in Gemalto's workforce as a result of this transaction, the deal is nonetheless expected to generate between $118 million and $177 million of pre-tax cost synergies by 2021.

If the deal goes through, the combined company will launch a digital security global business unit that accounts for $4.2 billion, or 20 percent, of the firm's overall revenue. This would make the combined company's cybersecurity practice just $100 million smaller than worldwide security leader Symantec, and a full $1 billion larger than Idemia, which Gartner said is the world's third largest cybersecurity firm.

Thales will combine its own digital assets into the new digital security practice, which will operate under the Gemalto brand as one of seven Thales global business units. The combined digital security business will be led by Gemalto CEO Vallee.

"It's great that they have a little more that they can offer, and digital security is an up-and-coming technology," said Jolene Johnson, owner of Knoxville, Tenn.-based Absolute Access ID. "If it makes Gemalto a little more optimized, it would do the same for me as a reseller for my customers."

Absolute Access has worked with Gemalto around their authentication and public key infrastructure (PKI) tools for the past half-decade, Johnson said, and has been impressed by their wealth of experience and knowledge. Gemalto particularly excels at putting together a holistic system that completely addresses the needs of the end user, according to Johnson.

"I trust that Gemalto is going to do what's in their best interest to make them well-rounded," Johnson said. "I'm sure they've put considerable thought into doing this."

Thales praised Gemalto's transition from its historical businesses to the fast-growing government, enterprise security, and industrial IoT markets. Payment services, however, is still Gemalto's largest business, accounting for 32 percent of overall sales, while mobile embedded software and products comprise 19 percent of the firm's overall revenue.

The deal will also help Thales diversify from a geographic standpoint, with revenue from the Americas increasing from $2.13 billion to $3.55 billion, or from 12 percent to 16.5 percent of the overall business. Some two-thirds – or $14.42 billion – of Thales's combined $21.51 billion of annual sales will come from Europe, the Middle East and Africa.