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Patrice Caine, Thales’s Chairman and Chief Executive Officer, commented: "The acquisition of Gemalto marks a key milestone in the implementation of Thales’s strategy. Together with Gemalto’s management, we have big ambitions based on a shared vision of the digital transformation of our industries and customers. Our project will be beneficial to innovation and employment, whilst respecting sovereign strategic technologies. We have a tremendous respect for Gemalto’s technological achievements, and our two Groups share the same culture and DNA. I would like to personally thank Gemalto’s management and Board of Directors for their unanimous support and I welcome warmly Gemalto’s 15,000 employees to our Group. By combining our talents, Thales and Gemalto are creating a global leader in digital security. "

Philippe Vallée, Gemalto’s Chief Executive Officer, added: "I am convinced that the combination with Thales is the best and the most promising option for Gemalto and the most positive outcome for our Company, employees, clients, shareholders and other stakeholders. We share the same values and Gemalto will be able to pursue its strategy, accelerate its development and deliver its digital security vision, as part of Thales."

Alex Mandl, Chairman of Gemalto’s Board of Directors, stated: "The Board of Directors, after full and careful review, together with its financial and legal advisors, of the various options available to the Company, has established unanimously that the Thales offer is in the best interests of Gemalto and all its stakeholders. As a result, the Gemalto Board of Directors unanimously recommends the Thales offer to its shareholders."

Acceleration of Thales’s digital strategy

Over the past three years, Thales has significantly increased its focus on digital technologies, investing over €1 billion in connectivity, cybersecurity, data analytics and artificial intelligence, in particular with the acquisition of Sysgo, Vormetric and Guavus. The integration of Gemalto strongly accelerates this strategy, reinforcing Thales’s digital offering, across its five vertical markets (aeronautics, space, ground transportation, defence and security). Altogether, this new business unit will represent c. 20% of pro forma Group revenues and rank among the top three players worldwide, with €3.5bn revenues in the fast growing digital security market.

Unique and innovative technology portfolio in an IoT, Mobile and Cloud World
Combined with Gemalto’s unique leading digital security portfolio, Thales will be ideally positioned to offer an end-to-end solution, to secure the full critical digital decision chains, from data creation in sensors to real-time decision making. This unrivalled and innovative technology portfolio will put Thales in a highly differentiated position to provide enterprises and governments with a seamless response to the data security challenges that lie at the heart of their digital transformation.

Creation of a global leader in digital security and cybersecurity

By acquiring a global leader in trusted identities and data security, Thales adds over €3bn of revenue to its digital business sales and acquires a set of technologies and competencies that have applications in all of Thales’s five vertical markets. The combination creates a powerhouse with a solution portfolio including security software, expertise in biometrics and multifactor authentication and the issuance of secure digital and physical credentials. These technologies, which combine diverse and constantly evolving use cases, are expected to yield significant commercial opportunities and revenue synergies in the years ahead.
Both Thales and Gemalto are experts at addressing the needs of the most demanding clients who are facing data security challenges. These include all operators of critical infrastructures including banks, telcos, governments, utilities, and general industries. This combination will reinforce and further globalise Thales’s footprint.

Capacity to address all customer digital security needs

Thales will combine its digital businesses into Gemalto, which will continue to operate under its own brand as one of the seven Thales global business units. Both the Thales and Gemalto management teams share a common industrial vision and endorse the growth project of this newly created digital security global business. Philippe Vallée will lead the combined digital security business.

R&D: the common DNA of Thales and Gemalto digital businesses

Gemalto and Thales are technology-driven companies with world-class R&D capabilities and an extensive patent portfolio. R&D is at the core of Thales’s and Gemalto’s digital security businesses, and will remain so. The combined Group will have more than 28,000 engineers, 3,000 researchers, and invests more than €1bn in self-funded R&D.

A combination providing enhanced opportunities to Gemalto’s employees and management

Thales does not anticipate any reduction in Gemalto’s workforce as a consequence of this transaction.
Employees who are included in the current Gemalto efficiency program are immediately offered access to Thales’s internal job boards and to the Thales internal mobility mechanism under the same conditions as Thales’s employees. Furthermore, Thales has committed to preserve employment in Gemalto’s French activities until at least the end of 2019. Thales recruited 6,000 people worldwide in 2017, and will actively pursue its human capital investments in the future.

An attractive offer to Gemalto shareholders

Thales offers €51 in cash per Gemalto share cum dividend. The offer price represents a premium of:
• 57% over the closing price as of 8 December 2017[1]
• 56% over the 1-month volume weighted average price1
• 48% of the 3-month volume weighted average price1
• Implied EV/2018E EBIT[2] of 17x

Significant value creation for Thales shareholders

Gemalto is well advanced in its transition from its historical markets to the fast-growing Government, Enterprise security, and Industrial IoT markets, with significant growth potential both in revenue and margin terms.
In addition, Thales estimates that the combination will generate run-rate pre-tax cost synergies of €100m to €150m by 2021, as well as meaningful revenue synergies.
The transaction will generate mid to high teens adjusted EPS accretion, pre synergies, as of the first year post closing. The acquisition’s return on capital employed (including synergies) will exceed Thales’s cost of capital within 3 years following the closing of the acquisition.

An offer unanimously recommended by Gemalto’s Board of Directors

Consistent with its fiduciary duties, Gemalto’s Board of Directors, with the support of its financial and legal advisors, has carefully reviewed and unanimously concluded that the offer is in the best interests of the Company, the sustainable success of its business and clients, employees, shareholders and other stakeholders.
Accordingly, the Gemalto Board has decided to unanimously support the transaction and recommend that Gemalto’s shareholders accept the offer and vote in favour of the resolutions relating to the offer at the upcoming Extraordinary General Meeting. Furthermore, all members of Gemalto’s Board who hold shares for their own account have committed to tender all those shares into the offer.
On 16 December 2017, Deutsche Bank and J.P. Morgan Securities plc issued fairness opinions relating to the offer to Gemalto’s Board of Directors.

Fully secured transaction financing

Thales will be able to finance the offer through its available cash resources and through new debt arrangements. In connection with the offer, Thales has secured a €4.0 billion fully committed credit agreement.

Solid combined balance sheet

Following the transaction, Thales will maintain a solid investment grade rating, based on continued disciplined capital allocation.
In this context, Thales’s dividend policy will remain unchanged.

Other non-financial covenants

In addition to the arrangements agreed with regard to strategy, R&D, and Gemalto employees described above, Thales and Gemalto have agreed on certain non-financial covenants with regard to the location of the Gemalto headquarters, continuation of the Gemalto brand, financing strategy and CSR matters. In general, these non-financial covenants (including with respect to strategy, R&D and employees) will continue to apply for two years after closing of the offer. Any material deviation from the non-financial covenants will require the affirmative vote of two independent directors who will remain on the Gemalto Board for the duration of the non-financial covenants. These independent directors will particularly monitor that appropriate consideration will be given to the interests of Gemalto minority shareholders and all other stakeholders’ and relevant employee representation bodies’ information and/or consultation requirements.

To facilitate the integration of the Gemalto Group within Thales, an Integration Committee will be established that is composed of senior representatives of both Thales and Gemalto. The Integration Committee will determine an integration plan, monitor its implementation and do all things necessary to assist and facilitate the integration.

Offer Conditions

The commencement of the offer, and if and when made, the consummation of the offer is subject to the satisfaction or waiver of conditions that are customary for transactions of this kind, including:
a. minimum acceptance level of at least 67% of Gemalto shares;
b. no material adverse effect having occurred and is continuing;
c. no material breach of the Merger Agreement having occurred; and
d. no Superior Offer having been made or agreed upon.

Thales and Gemalto may terminate the Merger Agreement if a third-party offeror makes an offer which, in the opinion of the Gemalto Board, taking into account certainty, timing, financing, strategic fit, consequences for employees and other non-financial aspects of Thales’s offer, is substantially more beneficial than Thales’s offer and exceeds the offer price by 9% at least (a "Superior Offer").

In the event of a Superior Offer, Gemalto shall give Thales the opportunity to match such offer, in which case the Merger Agreement may not be terminated by Gemalto. Gemalto has agreed in the Merger Agreement to customary non-solicitation undertakings.

On termination of the Merger Agreement by Thales on account of a material breach by Gemalto or in the event of a third-party offer at a higher price, Gemalto will pay a termination fee of €60m to Thales.

In addition, taking into account the interests of Gemalto, the sustainable success of its business and clients, employees, shareholders and other stakeholders, in order to secure the benefits of the transaction, Gemalto has agreed to issue contingent rights. In the event that a competing offer at a price that is less than 109% of the offer price is declared unconditional, these contingent rights will be issued for no consideration to all Gemalto shareholders and will entitle them to receive additional Gemalto shares.
On the date such a competing offer is declared unconditional, all Gemalto shareholders will acquire contingent rights which will entitle them to receive additional shares within three months after that date. The value of all the shares issued pursuant to the contingent rights will be equal to the difference between (i) the value of an offer made at a price of 109% of the offer price and (ii) the consideration offered in the competing offer.
In the event that a competing offer exceeds 109% of the offer price, the contingent rights will be automatically cancelled.

Indicative timetable

The transaction is expected to close shortly after Thales has secured all customary regulatory approvals and clearances, which is expected for the second half of 2018. Thales’s and Gemalto’s works councils will be informed shortly.

Offer memorandum and general meeting of shareholders

Thales intends to submit a request for approval of its offer memorandum to the AFM within four weeks and to publish the offer memorandum shortly after approval by the AFM.
Gemalto will hold an Extraordinary General Meeting prior to the closing of the offer period to inform its shareholders about the offer and to adopt certain technical resolutions that are conditional on the consummation of the offer.

Transaction advisors

In connection with the transaction, Thales’s financial advisors are Lazard, Messier Maris & Associés and Société Générale, and its legal counsel are Cleary Gottlieb Steen & Hamilton LLP and NautaDutilh N.V.
On behalf of Gemalto, Deutsche Bank and J.P. Morgan are acting as financial advisors and Allen & Overy LLP and Darrois Villey Maillot Brochier are acting as legal counsel.