London, Montreal: The future of Logica, one of the most venerable names in UK IT consulting, is in doubt after its board accepted a bid from Canadian IT services group CGI yesterday.
But Logica shares bounced above the offer price on the announcement suggesting that the City expects a counter offer.
- CGI to acquire Logica creating a "global technology champion"
- Recommended £1.7 billion (C$2.8 billion) cash acquisition of 105 pence (C$1.68) per ordinary share
- Logica's board of directors has unanimously agreed to recommend the transaction.
- Logica cites economic uncertainty in core European markets as driving motive
- Limited geographic overlap with CGI is part of "industrial logic"
Logica has recommended the acquisition by CGI. Its offer of 105 pence per ordinary share in cash is equivalent to a total purchase price of £1.7 billion; CGI will take on Logica's net debt of £322 million as of December 31, 2011.
The transaction represents a 59.8% premium to Logica's closing price on May 30, 2012 (the last business day before this announcement), a 49.6% premium to the average share price over the one month period to May 30, 2012 and a 32.8% premium to the average share price over the six month period to May 30, 2012.
This implies an enterprise value multiple of approximately 6.6 times Logica's EBITDA for the 12 months ended 31 December 2011.
CGI says the deal will deliver substantial financial benefits, not least through integration worth £125 million by the end of the third financial year following completion. These benefits are expected to be realised at a one-off cost of £165 million over three years. The two firms anticipate that further revenue opportunities will be available to the combined business through the enhanced offering of both geographic and product services to clients of both CGI and Logica.
Irrevocable undertakings have been received in support of the transaction from Logica's directors and from Logica's largest shareholders, including Schroder and Artemis. Total irrevocable undertakings received represent a total of 18.19% of Logica's outstanding shares.
CGI will finance the acquisition through a combination of:
- 46.7 million subscription receipts exchangeable into new Class A shares in CGI at £13.38 (C$21.41) by the Caisse de dépôt et placement du Québec for £625million (C$1.0 billion);
- Additional debt funding of £1.25 billion (C$2.0 billion) from Canadian Imperial Bank of Commerce, National Bank of Canada and The Toronto-Dominion Bank; and
- Approximately £406 million to be drawn from CGI's existing credit facility.
Commenting on the acquisition, David Tyler, Chairman of Logica, said, "Over the past few years Logica has successfully integrated its European businesses into a single organisation with a clear brand and position in its main markets. Significant investments have been made in sales and marketing. It has established a strong presence in outsourcing which now represents 45 per cent of the business. Logica has also cut overhead and staff costs substantially and offshore numbers have more than doubled, improving its cost competitiveness.
"At the same time, industry dynamics have continued to develop. Competitive intensity has increased as the industry has globalised and scale has become an ever more important factor in cost competitiveness and service. Additionally, in Logica's main European markets there is considerable economic uncertainty, which affects confidence and demand from both public and private clients.
"Following an approach by CGI, the two companies engaged in a period of discussion around the possibility of combining the businesses. The Logica Directors consider there to be a strong industrial logic for the proposed combination with CGI. It meets clients' requirements for a more comprehensive international presence and offers them the benefits of scale. 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."
CGI says the combined company will have real global reach with approximately 72,000 professionals in 43 countries and revenue of £6.5 billion (C$10.4 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."
"This announcement is consistent with our profitable growth strategy and with our belief that the global consolidation of our industry is both necessary and inevitable. Logica is a leading business and technology service company with talented and committed employees and long-term client relationships," said Michael E. Roach, President and CEO of CGI.
"It further underscores our ongoing commitment to support our clients as they expand their businesses locally and globally. In addition to operational breadth and depth, the combined business will have critical mass and key blue chip client relationships.
"We warmly welcome Logica's professionals and believe that the combined business will provide new and larger growth opportunities for employees and clients, as well as offering CGI shareholders the superior and industry leading returns we have delivered historically."
"We believe Logica is the right acquisition, at the right price and at the right time to create one of the very few independent global end-to-end technology services providers," added Mr. Roach.
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. It is anticipated that the acquisition will completed by the end of September 2012.