Capgemini scores big with TXU
10-year, $3.5bn IT services contract
Capgemini has signed the biggest IT services contract of 2004 so far: a 10-year $3.5bn outsourcing deal with TXU to provide a range of BPO and IT support services. The deal is similar to an agreement Capgemini has with Hydro One, but it looks like the French IT services provider has learnt from its previous experience.
The contract is a significant boost for Paris-based Capgemini's ambitions in the US, and will give it a foothold in the one of the country's biggest energy companies, enabling it to compete more successfully with Accenture for energy outsourcing deals.
The markets reacted positively to the news of the contract, with the price of Capgemini's shares shooting up almost 6 per cent to a high of €29.47 in Tuesday trading on the Euronext Paris exchange, up from a close of €27.81 the previous day.
The deal resembles Capgemini's outsourcing relationship with Canadian utility giant Hydro One, whereby the two companies set up a joint venture operation managed by the IT services provider. TXU and Capgemini have jointly set up Capgemini Energy, in which TXU has less than a 3 per cent stake. The company will be staffed by 2,700 of TXU's employees who will move over on 1 July, 2004.
Importantly, the formation of Capgemini Energy will also enable Capgemini to target other US energy clients, acting as an "exclusive vehicle for offering technology and business process services for other companies in the US electric, gas and water utility industry", according to the company.
The Hydro One contract is worth C$100m ($71.8m) annually to Capgemini, which uses the money to manage and operate its Inergi subsidiary. However, concerns regarding the profitability of the deal were raised after Capgemini announced it was preparing to cut back staff at the operations in April. Moreover, the company has failed to win any significant new business through Inergi.
The significantly higher value of the TXU deal - five times higher value, with only three times as many staff - may be evidence that Capgemini has learnt its lesson from Hydro One. It may also mean that Capgemini Energy will not be too reliant on winning new client deals in the long term.