July 30, 2007 / 9:11 AM / in 10 years

France's Steria to buy UK IT group Xansa

(Adds CEO comments from all, share reaction, trader comments)

By Dominique Vidalon

PARIS/LONDON, July 30 (Reuters) - French IT service provider Groupe Steria TERI.PA is buying British rival Xansa Plc XAN.L for around 472 million pounds ($960 million) in cash, to accelerate its growth in Britain and India and bolster its positions in business process outsourcing (BPO).

Steria said the deal would boost its earnings per share from 2008 onwards and that the combined company would rank among the top 10 in its sector in Europe with a proforma combined revenue of around 1.8 billion euros ($2.46 billion) and operating profit of 170 million euros.

Chief Executive Francois Enaud told a conference call that buying Xansa was “a fantastic growth” opportunity for Steria, allowing it to deliver on its goal to lift revenue to 2 billion euros by 2008 from 1.3 billion in 2006 and accelerate its development offshore.

By 0810 GMT, the stock was down 3.8 percent at 44.09 euros, underperforming the European tecnology sector .SX8P, as investors said the deal -- which includes a rights issue -- made strategic sense but looked expensive.

“It’s a very essential strategic move for Steria, and a deal was expected. But that being said, the price paid is somewhat expensive,” one trader said.

“We would have preferred to see 100 pence to 110 pence paid instead of the 130 pence, and that’s why the market is disappointed,” he added.

BID PREMIUM

Steria said it was offering 130 pence for each share in Xansa, whose stock surged last week on bid speculation.

The offer represents a premium of around 70 percent to Xansa’s closing share price on July 26, the day before the company said it was in takeover talks, and a premium of 25 percent to Xansa’s closing share price on Friday.

The acquisition -- due to close in mid-October -- is expected to deliver total pre-tax synergies of around 24 million euros in 2008, 49 million euros in 2009 and 53 million euros from 2010 onwards. The costs to achieve these synergies are estimated at approximately 49 million euros over two years.

Half of the acquisition will be financed through a bridge loan provided by BNP Paribas, which will be repaid through proceeds of a capital increase, whose timing and size have yet to be set.

Buying Xansa, which employs 8,000 people, of whom 5,000 are in India, will allow Steria to accelerate its development offshore.

The combined company will have some 25 percent of its headcount of roughly 20,000 people offshore, Enaud said.

Steria also unveiled on Monday an operating margin of 6.3 percent for the first-half 2007, unchanged from the year-ago, on sales of 647.9 million euros, up 6.7 percent.

Goldman Sachs and BNP Paribas advised Steria on the deal while UBS advised Xansa.

(Additional reporting by Blaise Robinson)

((Reporting by Dominique Vidalon, Kerstin Neuber and Sudip Kar-Gupta; Editing by David Cowell; Reuters Messaging: kerstin.neuber.reuters.com@reuters.net; e-mail: kerstin.neuber@reuters.com; phone +33 1 49 49 54 52))

($1=.4917 Pound)

($1=.7325 Euro) Keywords: STERIA XANSA/

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