French computer services group Atos yesterday announced it would merge with Origin, a unit of Philips Electronics, in a €2.6bn (£1.6bn) deal, to create a leading European IT services player.

The newly formed group will provide services ranging from consulting and systems integration to online services and outsourcing.

The new company will be the third biggest in Europe, behind Cap Gemini and Getronics - companies that have already made acquisitions to expand market share and push into consulting.

Under the agreement Philips will receive roughly 21.5m newly issued Atos Origin shares, representing 48.9% of the combined group.

Philips will also have the right to buy Atos Origin shares on two subsequent occasions. Each tranche will represent about 2.4m Atos shares, linked to share price performance, which would boost the value of the deal to €3.2bn.

However, as part of the agreement Philips will reduce its stake in the combined group to below 35% within two years of the completion of the transaction and will not vote more than that percentage of Atos shares.

Bernard Bourigeaud, the chief executive of Atos, said the transaction would be earnings enhancing in 2001.