CMG stock plummets as it buys Admiral for £1.1bn

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The Independent Online

Shares in CMG, the IT services company, took a battering yesterday as news of its £1.1bn acquisition of Admiral, an IT consultancy, sparked fears of a slow-down in growth.

Analysts said that although the deal was logical and struck at a fair price, there remained concern that Admiral would retard CMG's growth rate. CMG has been highly rated partly for its fast-growing telecoms products, which Admiral lacks. The combined group will become one of Europe's largest computer services companies, with 11,100 employees in 13 countries.

Donaldson Lufkin & Jenrette cut its recommendation on CMG shares from "buy" to "market performance". Michael Finney, an analyst at the US bank, said: "This dilutes CMG's exposure to sexier areas, such as its SMS (short-messaging service) software. Admiral is basically a systems integrator. Overall though, we're neutral towards this, it's a reasonable acquisition." CMG shares plummeted nearly 20 per cent to 4,327p, with losses also spurred by a general sell-off of technology-related issues.

Cor Stutterheim, chairman of CMG, said: "We're very compatible businesses, in complimentary market-places and no real overlap in our customers. We're both leaders in systems integration and we both wanted to build our European business."

The recommended all-paper deal will double CMG's workforce in the UK and France. The acquisition, on the basis of 0.390625 new CMG shares for each Admiral share, will leave Admiral shareholders with up to 17 per cent of enlarged group. Admiral shares ended up 152.5p at 1,582.5p, compared with the offer price, which was worth around 1,600p last night.

There is a partial cash alternative, for up to £175m. CMG said that acquisition would be earnings enhancing in its first year.

Admiral's founder and chairman Clay Brendish, who owns 17 per cent of the company, will join the combined group as deputy chairman.

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