Logica to be acquired by CGI for £1.7bn

By Peter Gothard
31 May 2012 View Comments
Two people shaking hands

Logica has accepted a £1.7bn bid by Canadian IT services and consulting company CGI Group.

The IT services company has been considered an acquisition target for some time. After enjoying impressive growth throughout the 1980s and 1990s, it has been widely regarded as having lost its way in recent years.  By December 2011, annual profits had dropped from £192.9m to £32.7m.

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While CGI is a smaller company by turnover, its approach has been welcomed by Logica's board.

"Logica's directors consider there to be a strong industrial logic for the proposed combination with CGI," said Logica chairman David Tyler. "It meets clients' requirements for a more comprehensive international presence and offers them the benefits of scale."

However, CGI is a smaller company with challenges of its own and is arguably bidding a high price for Logica – a 60 per cent premium on the company's closing share price last night.

Richard Holway, chairman of analysts TechMarketView, was sceptical about the potential for the acquisition.

"CGI has very little revenue overlap with Logica's UK and European operations. However, this is a huge acquisition for CGI, which is actually smaller than Logica. On top of that, CGI is not exactly a star performer, itself reporting declines in revenues and profits yesterday."

Holway blamed former CEO Andy Green for Logica's poor performance in recent years and noted that the CGI deal with Logica will mean the UK no longer has any indigenous pure IT services players in the top-10 suppliers in the UK market.

Not all analysts were quite so critical, however.

"In these verticals the new organisation has the potential to become a leading global player," said Tom Reuner, principal analyst at Ovum. "But the challenges will lie in the integration and the cost structure, given that both organisations have only limited global sourcing capabilities."

Reuner added that it may provoke a bidding war, especially from India-based services companies that are known to be considering acquisitions in Europe.

Logica's Tyler said the deal would present great opportunities for the company. "Given the very limited geographic overlap and CGI's strong reputation for successful integration, we believe this transaction will offer great opportunities for Logica's people. For our shareholders, the offer represents an opportunity to realise a substantial premium in cash to the current share price," he said.

"In addition to operational breadth and depth, the combined business will have critical mass and key blue chip client relationships," added CGI president and CEO Michael Roach.

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