LONDON  - Elliott Advisors is doubling down in its standoff with Capgemini. The New York-based activist investor on Wednesday said it will not tender its stake in Altran Technologies, which is the subject of a $4 billion bid from the French IT consultancy. If the bid fails, Capgemini CEO Paul Hermelin can convincingly argue Altran shares will fall. But even if he secures a majority, a pending legal trial could give minority investors another chance to secure a higher price.

Elliott’s refusal to tender its 14% stake is a blow to Hermelin’s battle to take control of Paris-listed Altran. Both sides agree a union makes sense: Capgemini supplies the consultants and Altran the engineers to build the industries of the future. Their dispute is over price. The fund run by Paul Singer has consistently argued that Capgemini’s bid of 14 euros per share undervalues its target. The $20 billion company insists it will not raise the offer, which is supported by Altran’s board.

Hermelin argues that Altran shares will tumble if Capgemini fails to get more than 50% of the shares. When the company launched its bid last June, the offer represented a 33% premium to Altran’s volume-weighted average share price over the previous three months. However, France’s benchmark CAC 40 index is up by 8% since then. Based on some analysts’ estimates of Altran’s value, Elliott says the premium is now just 7%.

Even if Capgemini does take control, the fight will not be over. Minority shareholders have launched a legal challenge into what they allege are irregularities surrounding the bid. A ruling is due in March. If Capgemini loses, it will have to re-issue the offer, possibly at a higher price.

Hermelin has several reasons to strike a last-minute compromise with uppity investors before the Jan. 22 deadline. He is due to hand over the reins to Chief Operating Officer Aiman Ezzat in May. And even if Capgemini gets over 50%, Hermelin has pledged not to integrate the companies or change Altran’s board until the legal wrangle is settled.

Altran shares were trading at 14.15 euros on Wednesday morning, suggesting that investors see limited scope for extracting a higher price. If the deal fails, Elliott and others will suffer short-term pain. But given the industrial logic in combining with Altran, that would represent a pyrrhic victory for Capgemini.

CONTEXT NEWS

- Elliott Advisors said on Jan. 8 it will not tender its shares in Altran Technologies to Capgemini, which has made a $4 billion offer for the Paris-listed IT support services company.

- The New York-based hedge fund, which holds nearly 14% of Altran, said the current offer “fails to recognise Altran’s true value”.

- The French financial market authority, Autorité des Marchés Financiers, has set a closing date of Jan. 22 for Capgemini’s 14 euros per share bid, according to a company statement on Dec. 18.

- The move followed a ruling from the Paris Court of Appeal rejecting a request from some minority shareholders to delay the closing date of the tender offer.

- L'association de Défense des Actionnaires Minoritaires (ADAM), a group of French minority shareholders which includes Elliott, had lodged a legal challenge to Capgemini's bid, saying there were irregularities in the process. It requested that the closure of the offer be delayed until March, when a decision on that broader proposal is expected.

- Capgemini shares were down by 0.5% at 108.85 euros by 0900 GMT on Jan. 8. Altran shares were up 0.3% at 14.14 euros.

(Editing by Peter Thal Larsen and Karen Kwok)

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