Tieto scoops up Evry in $1.5 billion deal to create Nordic digital consultancy

OSLO/HELSINKI (Reuters) - Finnish IT services firm Tieto is buying Norwegian peer Evry for 13.2 billion crowns ($1.5 billion) to create a Nordic digital consultancy offering software, cloud solutions, robotics and other services.

FILE PHOTO: Finnish company Tieto sign is seen at their headquarters in Espoo, Finland July 17, 2018. Picture taken July 17, 2018. REUTERS/Ints Kalnins

Shares in Evry surged 18%, and Tieto’s rose by 5.8%, after the two companies announced on Tuesday that they had agreed a deal, which represents a 15.4% premium over Evry’s last traded share price.

Tieto has for years been seen as a potential buyer of Evry as it seeks to expand in the Nordics’ IT market.

The merged company will have annual revenues of nearly 3 billion euros ($3.4 billion), the companies said in a joint statement, and they aim to reduce costs by 75 million euros annually via layoffs and other cuts, most of which will be achieved by the end of 2022.

The agreed offer will give Evry’s owners a 37.5% stake in the new company and a total cash consideration of approximately 200 million euros.

“The transaction is a natural step in the ongoing consolidation of the Nordic IT-services market,” Tieto board member Jonas Synnergren, a partner at activist fund Cevian Capital, a leading Tieto shareholder, told Reuters.

“The industrial logic for the merger is very strong, creating a clear leader in the Nordic market with local presence, scale and a broad product and competence portfolio,” he added.

The merged company will have 24,000 employees and be based in Espoo, Finland. A spokeswoman for Tieto declined to comment on job cuts.

“We believe Tieto’s ability to achieve earnings growth was getting scarce as rationalization had reached its limits and there were no longer sufficient drivers to achieve significant growth in the IT market for a company of Tieto’s size,” industry analyst Mikael Rautanen at Indeeres wrote in a research note.

“If the merger is successful, it offers a clear new phase and a driver for value creation for Tieto’s strategy for the next five years,” he added.

The deal, which requires support from two thirds of shareholders in each firm, has the support of Tieto’s two largest owners, Finnish state investment arm Solidium and Cevian, as well as Evry’s biggest shareholder, private equity firm Apax Partners.

The largest shareholders in the merged company will be Apax Partners with 20.4% and Cevian with 9.4%.

“We expect that the combination of the two companies will create significant additional value – both through gaining market share and cost synergies – clearly above the share price reaction we have seen today,” Cevian’s Synnergren said in an e-mailed statement.

Completion of the transaction, which is also subject to regulatory approvals, is expected to take place in the fourth quarter of 2019 or during the first quarter of 2020 at the latest, Every and Tieto said.

“The companies estimate that non-recurring implementation costs, anticipated to materialize by 2022 will amount to 120-140 million euros,” the two companies said.

Additional reporting by Johannes Hellstrom in Stockholm and Boleslaw Lasocki in Gdynia; Editing by Gwladys Fouche and Susan Fenton