AMS broken up in deal with CGI Group and CACI

In a three-way deal, American Management Systems Inc. is being broken apart and sold to CGI Group Inc. and CACI International Inc.

The Fairfax, Va., company is being sold to CGI of Montreal for $858 million in cash, or $19.40 a share. As part of the agreement, CACI of Arlington, Va., is purchasing the U.S. assets of AMS's Defense and Intelligence Group for $415 million in cash for.

The net cost of the deal to CGI will be $443 million.

Following the purchase, CGI and AMS will merge their operations and go to market in the United States as CGI-AMS. The business that CGI is acquiring from AMS has annual revenue of about $700 million.

The deal will go through regulatory review and is expected to close in May.

The acquisition of AMS will bring CGI more business in the United States and Europe and increase its defense business in Canada. CGI had $2.1 billion in revenue in 2003.

"By joining forces with AMS, we will now become a billion-dollar player in the United States and, given our complementary solutions and service offering, we will be better positioned to help our customers maximize the value of their information technology," said Serge Godin, CGI's chairman of the board and chief executive officer.

Shares in AMS, which trades on NASDAQ, closed at $15.42 today. The shares had a 52-week high of $17.33 and low of $10.30. CGI's offer for AMS is a 26 percent premium over the average share price for the past 30 days.

CGI and CACI also signed a strategic alliance for CACI to receive all intellectual property solely used by AMS' U.S. Defense and Intelligence Group and a license from CGI to use certain intellectual property retained by CGI. CACI also will grant CGI a license to use certain of its intellectual property.

For CACI, a provider of IT and network solutions for defense, intelligence and e-government, the acquisition expands its offerings in the area of finance and administration. CACI's defense business is primarily associated with warfighting systems, said Ray Bjorklund, senior vice president and chief knowledge officer with the market research firm Federal Sources Inc., McLean, Va.

"CACI has been interested in bulking up," he said. "They are going to be picking up some really good qualifications in defense."

CACI was ranked No. 19 on Washington Technology's Top 100, which measures federal contracting revenue. CACI had revenue of $843.1 million in 2003.

Bjorklund said that CGI not only has a strong base with the Canadian government and the provinces but also a strong base in the Northeastern United States and with the U.S. federal agencies through General Services Administration schedules. The acquisition could result in CGI becoming a much stronger company, he said. AMS was ranked No. 46 on the Top 100.

"This might be the making of a North American powerhouse," Bjorklund said.