CGI to pay $2.8B to purchase British IT services provider

CGI Group Inc. has announced it plans to buy Logica, a business and technology services provider based in Reading, England, for approximately $2.8 billion plus assumption of Logica’s net debt of $500 million as of Dec. 31, 2011.

The transaction represents a 59.8 percent premium to Logica's closing price May 30, 2012, the last business day before CGI's May 31 announcement.

The transaction is expected to deliver substantial financial benefits through the realization of annual integration benefits of $194 million by the end of the third financial year following completion, the May 31 statement said.

CGI strongly believes this transaction will strengthen its capabilities across the five key attributes of a global leader in IT and business process services: people and culture, client proximity with blended global delivery, end-to-end capabilities, operational excellence, and mission-critical intellectual property.

Logica provides business consulting, systems integration, cloud services and outsourcing to clients around the world, including many of Europe's largest businesses, the announcement said.

The combined company will have approximately 72,000 professionals in 43 countries and revenue of $10.1 billion, offering clients across the world the best mix of business and technology expertise as well as an unmatched combination of local and global delivery options.

Details of the recommended acquisition will be sent to Logica shareholders shortly and in any event within 28 days of the date of this announcement.

The acquisition is expected to be completed by the end of September.

Logica is a high-quality business, respected for its talents and approach. It represents a good buy even at this price, as it has been somewhat undervalued by the market relative to its peers, according to Pierre Audoin Consultants’ PAC blog May 31.

While Logica isn’t the biggest player on the UK IT market, the blog noted, it is the largest UK-owned, pure-play IT services company, and has substantial practices in France (its largest operation), the Netherlands and across the Nordic regions.

Logica’s problem has been that several of its strategic bets seemed to have turned against it in recent months: Its strengths in the Netherlands and public sector across Europe became liabilities, as both of those markets (public sector in the Netherlands worst of all) took a serious downturn in the face of European economic woes.

The two Western economies doing best, the U.S. and Germany, are – despite several forays in the past – areas it hardly has a footprint. Operating margins have been wafer thin.

So while the CGI bid is “agreed” by both parties, we certainly wouldn’t rule out a counter-bid, the PAC blog said.

CGI Group Inc., of Montreal, Que., ranks No. 41 on Washington Technology’s 2011 Top 100 list of the largest federal government contractors.

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