Atos Origin Acquires KPMG Consulting In The UK And The Netherlands

Business Wire, June 10, 2002

Business Editors & Technology Writers

PARIS, Amsterdam--(BUSINESS WIRE)--June 10, 2002

Atos Origin, a leading European information technology services provider, today announced that it has reached agreement to acquire KPMG Consulting in the UK and The Netherlands. The combined organisation will have 30,000 employees in more than 30 countries worldwide and will offer a full range of services - high-end business consulting, systems integration and managed services/outsourcing - to its global and European clients. The transaction, which is subject to partner, shareholder and regulatory approvals, will create a substantial base of operations in the United Kingdom, offering design, build and run services to both client bases. Together with recent major contract wins, the deal also positions Atos Origin as the clear leader in the Dutch IT services market.

Rationale and Commercial Benefits

With current combined revenues of EUR 600 million per annum and 2,800 employees, the acquisition of KPMG Consulting in the United Kingdom (UKC) and The Netherlands (NLC) represents a major strategic step for Atos Origin. As a result of this transaction the company will achieve two of its key strategic objectives. First, the deal will provide Atos Origin with a significant base of consulting operations, enabling it to offer a full set of services (design, build and run) to its global client base. Second, it will increase substantially the company's overall size in the UK market, which will now represent EUR 550 million per annum in revenues.

The principal commercial and operational benefits of this acquisition will come from:

-- strong and recognised consulting capabilities in both the UK and The
Netherlands

-- extended capability to serve large global clients

-- a highly complementary blue chip client base

-- increased wallet share with common clients

-- access to clients at board level

-- complementary industry sector expertise

-- enhanced potential to win outsourcing contracts

-- enhanced management strengths

The resulting shape of Atos Origin will be well balanced, with significant scale in consulting, systems integration and managed services, as well as specialist processing capability in on-line services. Nearly 50% of the group's revenues will be recurrent, based on multiple-year contracts, and the combination of consulting and IT service activities will lead to enhanced commercial opportunities, especially for outsourcing. Background

KPMG Consulting in the UK and The Netherlands were originally developed within the respective national practices of KPMG International. Although the consulting business has remained owned by both accounting and consulting partners, it has been managed autonomously over the last two years, in anticipation of ultimate separation. In recent years there has also been pressure to separate the regulatory responsibilities of auditors from their commercial service operations. Furthermore clients seeking effective business solutions are increasingly requiring the seamless provision of consulting and IT services.

KPMG Consulting in the UK and The Netherlands are leaders in consulting in their respective countries, with current annual revenues of approximately EUR 400 million and EUR 200 million respectively and a total of 2,800 employees. Both companies have achieved strong revenue growth in recent years and, in spite of current weakness in the IT services market as a whole, are well positioned to resume significant revenue growth.

The top 10 clients in each of KPMG Consulting UK and The Netherlands contribute roughly one-third of their total revenues, thereby mirroring the focus in Atos Origin on blue-chip global clients. KPMG Consulting also has a number of close alliances with key solution vendors, most notably Oracle.

Financial and Shareholder Structure

Consideration for the transaction is EUR 657 million. This will be satisfied through the payment of EUR 422 million in cash and the issue of 3.66 million ORAs - bonds mandatorily redeemable in 3.66 million new Atos Origin shares one year after closing and issued at a price of EUR 64.2 per ORA, equivalent to EUR 235 million.

The cash element of the consideration will be financed by long-term debt. The combined pro-forma net debt at December 31st, 2001 would be approximately EUR 690 million. Net debt will represent approximately 1.4 times combined proforma 2002 EBITDA.

Consulting partners will also receive a performance-related earn-out in the form of warrants with a nominal exercise price. Through this exercise, consulting partners may receive up to a maximum of 1.41 million Atos Origin new shares if profitability and revenue targets are met in the financial years 2002 and 2003.

The transaction will be accretive to earnings per share immediately after closing, before goodwill amortisation and exceptional items and before the benefit of synergies arising from the combination.

KPMG accounting and consulting partners will own approximately 3.7% and 4.0% of the issued share capital of Atos Origin immediately after conversion of the ORAs. The accounting partners are required to hold their stock for a minimum period of one year. The consulting partners are required to hold their stock for up to four years, with one quarter of this holding being released each year.