Logica in £458m rights issue to fund German buy

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The Independent Online

The blue-chip IT services group Logica has become the latest company to embrace the revived stock market fashion for rights issues, unveiling a £458m fund-raising yesterday to support a DM1.21bn (£370m) German acquisition.

The blue-chip IT services group Logica has become the latest company to embrace the revived stock market fashion for rights issues, unveiling a £458m fund-raising yesterday to support a DM1.21bn (£370m) German acquisition.

Logica's purchase of pdv Unternehmensberatung, the largest private IT company in Germany, concludes four years of on-off negotiations with Wilfried Forster, pdv's founder and 88 per cent shareholder. To fund the deal, Logica is asking shareholders to buy one new share for every 10 they own, at 1,150p - a sharp 48 per cent discount to Wednesday's closing price.

Logica said the PDV deal would be earnings enhancing in the current year. Logica stock closed up 52p at 2,277p, valuing the company at £8.9bn.

Logica's move adds momentum to the wave of rights issues that have followed the £1.7bn fund-raising unveiled by Pearson, the media group, in July. Rights issues became unpopular last decade after investors suspected companies used them to raise money for paying dividends.

Martin Read, Logica's managing director and chief executive, said a rights issue was a cheap fund-raising method. "Nobody's buying Logica for the dividend. People are more comfortable stumping up for a rights issue for a company like Logica than one that's dividend-paying," he said.

Steve Russell, equity strategist at HSBC, said New Economy companies' small cash generation made debt finance hard, yet their relatively large market capitalisations made rights issues easy. "Logica can afford to do this at a 40 per cent discount to its share price. So far we've seen companies raising cash to fund acquisitions. Soon we're likely to see them raising cash just to keep going."

Logica is paying five times pdv's £72.5m annual sales last year. By contrast, it trades on a multiple of 13 times historic sales.

Pdv will give Logica a network in Europe's largest and fastest growing IT services market, raising its staff numbers from 120 to 1,320. The tie-up will also allow pdv to offer overseas services to its domestic clients.

Both companies are strong in the financial services, public and utility sectors, with Logica the world leader in providing text messaging services to mobile networks.

Pdv's senior management is being retained, Dr Read said, adding that Mr Forster had decided not to float pdv for fear of committing to the company for a long period of time.

Around £80m of the remainder of the fund-raising's proceeds have been earmarked for the acquisition of MITS, an Australian IT services firm, and another company, which Logica declined to reveal.

Phil Davies, analyst at Lehman Brothers, said: "The issue will get support. I can't see any other way Logica could have got critical mass in Germany."

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