Cap Gemini Denies Shopping Its U.S. Arm

Cost overruns and competition from outsourcing rivals are said to be hitting the firm hard.
Stephen TaubNovember 22, 2004

Contradicting a report in the The New York Times, the chief executive officer of Cap Gemini said that the consultancy’s North American business unit isn’t up for sale.

The Paris-based firm’s CEO, Paul Hermelin, said in a statement to the Financial Times that “Cap Gemini denies having plans to sell its North American activities. Our energy is entirely devoted to turning around our operating performance in this zone.”

A person close to Hermelin said it would “make no sense” for Cap Gemini to sell its U.S. operations, according to the FT.

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The Times, however, had it differently. The paper reported on Friday that the Paris-based consultancy has been quietly shopping around the business. While Cap Gemini bought the North American operations from Ernst & Young for $11.1 billion in stock and cash in February 2000, a sale now might not even fetch $1 billion, according to the report.

The firm, which recently moved into outsourcing technology for large companies, recently landed its biggest job, a $3.5 billion contract with TXU, an energy company, the paper reported. But the firm has also encountered abundant cost overruns from other outsourcing jobs and competition from India and elsewhere.

Cap Gemini’s U.S.-based operation reported a $41.56 million operating loss in the first half of the year, according to the FT.

The Times said potential bidders for the Cap Gemini business are likely to be large technology hardware companies that want to expand into the consulting and outsourcing businesses and compete with giants like IBM.

One possible suitor is Hewlett-Packard, which in 2000 seemed interested in the consulting busines of PricewaterhouseCoopers. Others are Electronic Data systems, EMC, Computer Sciences, Atos Origin and Tata Consultancy Services, according to The Times.