KUHN CAPITAL Tuesday, October 17, 2017
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Gallic Indigestion

November 19

A giant of the technical services industry, French-owned Cap Gemini -- reeling from costly problems in integrating its $11 billion purchase of accountancy Ernst & Young two years ago -- is now reported by the New York Times to be looking for a buyer of the troubled unit.

Cap Geminiís US-traded stock has tumbled from about $44 per share last December to about $25 today.

We hear tales of low morale and allegations of imperious, inept management from US executives of the Gallic enterprise. What's surprising about E&Y's problems is that they come in the midst of a boom in demand for accounting and related IT services on the heels of sweeping Sarbanes-Oxley corporate oversight regulation.

With about a third of Cap Geminiís sales generated by US-based E&Y, the New York Times quotes experts claiming that the unit may fetch only about $1 billion upon sale. Among the prospective buyers is listed Atos Origin, another troubled French technical services conglomerate.

With Franceís proclivity to protect its economic ďnational treasuresĒ from foreign investment, as it earlier did with Atos, we may see Atos receive government blessings to proceed with an above-market offer for E&Y or with suboptimal operating synergies, of course at the usual cost to French investors and taxpayers.

Since we're speculating, here's another gadfly guess: Atos and Cap Gemini merge.


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