By John Harrington
Date: Thursday 31 May 2012
Another UK technology firm looks set to fall into the hands of foreign owners after business and technology services company Logica agreed to a takeover from Canadian peer CGI Group.
Though not as big a deal as the £7.1bn purchase of Cambridge based software outfit Autonomy last year by Hewlett-Packard, the 105p per share cash offer from CGI still values Logica at a chunky £1.7bn, and tops the £1.2bn price tag on financial software provider Misys, which is being acquired by Vista Equity Partners. More pertinently, perhaps, the valuation is some £638m higher than Logica's stock market capitalisation on the day before the bid was announced.
With its share price having fallen steadily since July of last year, when it was trading at just under 140p, Logica has often been cited as a likely bid target, especially after it issued a profit warning in December 2011.
Canada's CGI Group, which describes itself as an information technology and business process services provider, is Logica's preferred partner but there may be interest from Indian firms, which are very big in the outsourcing business; Logica derives 45% of its revenue from outsourcing.
The price tag on Logica is equivalent to 6.6 times the UK firm's earnings before interest, tax, depreciation and amortisation (EBITDA) for 2011.
CGI intends to effect the takeover via a scheme of arrangement, and the firm has already received irrevocable undertakings to vote in favour of the scheme from shareholders representing just over 18% of Logica's issued share capital.
"In addition to operational breadth and depth, the combined business will have critical mass and key blue chip client relationships," said Michael Roach, President and Chief Executive Officer of CGI.
Meanwhile, David Tyler, Chairman of Logica, acknowledged that competitive intensity has increased in the company's target markets, with global reach and scale becoming more important than ever.
On top of that, there is considerable economic uncertainty in Logica's main European markets, which affects confidence and demand from both public and private clients, so when CGI came a-knocking, the Logica board was prepared to sit down and discuss combining the businesses, with CGI, currently valued at around £3.4bn, the senior partner.
"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," Tyler said.
He got that last bit right, with the shares rocketing to 107.7p, up from 65.7p the night before the bid announcement. While shareholders will be very pleased, Logica's staff are likely to be apprehensive. The group previously announced in December 2011 that 1,300 jobs would go and many more departures could now follow.
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