Atos Finds Money For Restructuring: What To Expect For The Troubled AI Giant
Key Takeaways
- French IT giant Atos faces a significant financial crisis due to high debt.
- It has submitted a restructuring plan to its shareholders.
- A series of setbacks have eroded nearly €12 billion in market value.
- Now, a deal with the creditors may represent the end of a problematic time for a company crucial for France.
The French IT giant Atos SE is gaining momentum as it navigates a significant debt crisis. A majority of its creditors have supported a restructuring plan, entering a lock-up agreement that enables them to take control of the company
Once a key player in artificial intelligence , Atos has secured new financing from its creditors, paving the way for court approval of the restructuring. This development arrives just ahead of the Olympic Games in Paris, a potential turning point for Atos’s aspirations in the AI sector
Deal With Creditors
According to a statement on Monday, July 15, 2024, a majority of Atos’s creditors have signed a lock-up agreement, positioning them to take control of the struggling French IT services provider following its restructuring.
Atos also secured €1.68 billion in fresh funding from existing lenders, exceeding initial estimates. The plan involves creditors converting €2.9 billion in debt into ownership shares. It also provides the injection of €233 million in new equity, potentially with an outside investor.
A few creditors have yet to sign , but they have until July 22nd to do so. Atos plans to seek court approval for the restructuring that week, which allows them to move forward even if some creditors object.
The company is primed to sell its nuclear unit – Worldgrid – and its data security business – BDS – to pay down debt, but the final decision depends on Atos’s cash flow at the end of 2026.
The Restructuring Plan
Atos aims to reduce its debt by €2.4 billion by 2026 while seeking to extend its remaining debt maturities by five years. The company targeted at least €1 billion in fresh funds and aimed to halve its debt burden.
Once hailed as France’s tech industry standout, Atos now grapples with a daunting debt load and limited debt reduction options. With approximately €4.7 billion in debt, €3.65 billion of which is due by the end of next year, the company faces significant challenges. Negotiations with potential buyers like Czech billionaire Daniel Kretinsky’s EPEI and Airbus have faltered .
Before the July 15 announcement, the company had secured €400 million in interim financing from a consortium of banks and bondholders. This was supplemented by an additional €50 million from the French State, which will acquire a strategic interest in its supercomputer business.
However, CEO Paul Saleh cautioned that new funds could dilute current shareholders if the financing takes the form of equity.
How Did Atos Arrive At This Point?
Over the past seven years, Atos’s shares have plunged by over 97%. A series of setbacks, including supply chain constraints, accounting errors, profit warnings, and broader industry challenges, have collectively eroded nearly €12 billion in market value.
To restore a BB credit rating profile by 2026, Atos faces an uphill battle after S&P Global Ratings downgraded its debt to B-. This move positioned it six steps into junk territory. Presently, all of Atos’ debt remains unsecured, though the extent of creditor security may hinge on forthcoming proposals.
Some observers attributed Atos’s woes to former CEO Thierry Breton. Christian Nicol, co-president at UDAAC, a consortium of small Atos investors, criticized Breton’s acquisition strategy. He cited deals like the purchase of Syntel for $3.4 billion. This despite its revenue being less than a third of that figure.
Investments like these have contributed to Atos’s hefty debt burden, reaching €2.3 billion as of June 2023. Catherine Berjal, co-founder at CIAM, a hedge fund with Atos interests, attributes broader missteps to former CEO Breton’s delayed entry into cloud computing and onshore deals with companies like Siemens, diverging from competitors’ cost-effective offshore strategies.
However, challenges surpass Breton’s tenure. Experts lament a pervasive culture of incompetence at the company’s helm, leading to frequent leadership changes. Despite Breton’s smooth transition to EU commissioner in 2019, Atos has had four CEOs in less than two years. This was a period marked by tumultuous tenures and criticisms of inadequate disclosures under former chairman Bertrand Meunier.
Berjal suggested this ineptitude arises from France’s elitist corporate culture, where executives ascend from prestigious schools to boardrooms without fully grasping the complexities of their roles.
Crucial For France
French Prime Minister Gabriel Attal has personally intervened in the affairs of Atos. This is because the company has deep connections to France’s military and nuclear sectors. Attal emphasized that Atos’s strategic endeavors, such as providing cybersecurity for the upcoming Paris Olympics, must remain under French control. Addressing lawmakers, Attal reiterated the government’s commitment to ensuring Atos’s financial stability.
Finance Minister Brune Le Maire said the French government will use “all the means at its disposal” to preserve Atos’ strategic activities. “We will not abandon Atos’ industrial activities, which represent tens of thousands of jobs.”
The government’s position is to ensure that Atos’ strategic assets “remain in French hands,” whatever the cost, according to Les Echos.
Meanwhile, efforts to devise alternative rescue strategies are underway. Atos’s largest shareholder, Onepoint, announced that investment firm Butler Industries will join a consortium to salvage the company. According to a statement, the group’s objective is to safeguard and maintain all of the company’s assets.
Billionaire Daniel Kretinsky is considering a renewed takeover bid for certain segments of Atos, contingent upon the outcome of the restructuring and refinancing plan.
