$1.2 Billion Wiped Off Atos Valuation on Accounting Errors

By Luigi Wewege | Thursday, 01 April 2021 | Business, Tech, Finance

Atos SE, a major information technology (IT) company in Europe, saw its business valuation decrease by more than €1 billion ($1.17 billion) after the company said auditors came across accounting errors for two of its US business entities.

Shares Hit a 2-Year Low

The French company said in a statement today that auditors found “several matters relating to internal control weaknesses over financial reporting process and revenue recognition,” and that the accounting errors were not material to its 2020 financial reports. As a result, Atos stock plummeted over 20% to record the biggest intraday drop since October 2018.

Atos’s two US-based businesses, including Atos IT Solutions and Services and Atos IT Outsourcing Services, accounted for 11% of the company’s business revenue last year, while North America represents roughly 23% of the total business sales.

“As a result of the situation described above, the Group management hired external firms to perform additional works to obtain the necessary evidence that the financial reporting of these US entities is free of material misstatements and an independent forensic investigation,” the IT business said in a statement.

The disclosure of accounting errors marks yet another disappointing development for Atos’s management. This comes after the company failed to acquire DXC Technology in February, a business deal that would have created a powerful IT company and a stronger competitor to giants such as SAP SE and Accenture.

However, the size of the combination has shocked investors at the time as DXC may have been valued at over $10 billion in a deal, according to Reuters’s previous report. At the time, Atos’s board of directors unanimously agreed to drop the business deal with DXC while the B2B IT services provider found Atos’s offer inadequate and said it lacked certainty.

“Though the purchase would have given Atos scale to resist some pricing pressures, it wasn’t a perfect fit as the company looks to move toward high-growth digital services,” Tamlin Bason, a Bloomberg Intelligence analyst, said.

“Atos’s decision to walk away from its proposed $10 billion acquisition of peer DXC Technology suggests that it’s opting against doubling down on legacy IT outsourcing services.”

The company has completed more than half a dozen deals over the last five years, which has helped it develop its business, according to Bloomberg data. The company’s largest deal was the $3.4 billion acquisition of its US rival Syntel in 2018.

Last year, Atos’s best-performing region was North America, and the uncertainty surrounding this market could leave the French company “dealing with an overhang for some time,” Bason noted.

Atos is set to hold its annual general meeting on May 12.

Following a similar scenario, shares of Plug Power fell sharply last month after the fuel-cell company announced accounting errors. This prompted a series of stock downgrades from Wall Street analysts on credibility concerns.

Summary

Shares of the French IT company Atos plunged to their lowest mark since October 2018 on the news that auditors found accounting errors for two of its US entities. Atos’s stock dropped as much as 22% at one point of today’s trading session in Paris to shelve more than €1 billion ($1.17 billion) of the company’s valuation.

About the Author

Luigi Wewege

Luigi Wewege is the Senior Vice President, and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an Instructor at the FinTech School which provides online training courses on the latest technological and innovation developments within the financial services industry. Luigi is also the published author of: The Digital Banking Revolution.