LogicaCMG shares dive on 'expensive' Nordic buy

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The Independent Online

LogicaCMG came a step closer to its goal of becoming one of the world's 10 largest IT services groups yesterday when it clinched the 11.9m Swedish kronor (£882m) purchase of a Scandinavian rival.

The Anglo-Dutch company agreed a cash and shares offer to buy WM-data, a Nordic IT services company listed on the Stockholm Stock Exchange. The acquisition will make LogicaCMG one of the top 20 companies in the sector in the world, and the seventh largest in Europe, with more than £3bn of annual sales and almost 40,000 staff in 41 countries.

LogicaCMG's chief executive, Martin Read, defended the purchase, which was criticised by analysts as expensive. "We will certainly be of the size following the acquisition of WM-data where we can win most of the contracts that we would want to go after," he said. "Our ambition is to be in the global top 10. Increasingly, our customers want to do business with a smaller number of larger suppliers who can provide them with a broader range of offerings and support them internationally."

However, investors were unimpressed, with the shares down 7.5 per cent at 159.5p, making the stock the worst performer on the FTSE 250 yesterday. Hans Slob at Rabo Securities said: "LogicaCMG are paying way too much. The synergies are limited because LogicaCMG is small in the Nordics. I expect the shares to come off even more."

LogicaCMG, which was created in 2002 from the merger of Britain's Logica and the Anglo-Dutch Computer Management Group, intends to issue up to 409 million shares to generate about £700m to pay for the purchase. WM-data shareholders will get 95 LogicaCMG shares and Skr557 in cash for every 100 shares tendered. The offer is 25 per cent above WM-data's three-month average share price.

The deal enables LogicaCMG to develop a fourth major operation in addition to its businesses in the UK, France and the Netherlands. It follows last year's acquisition of Unilog, a French software company, for €930m (£626m) in shares and cash.

The offer was backed by Investor, the holding company of Sweden's Wallenberg family, and the WM-data founder Thord Wilkne, who jointly own 23.2 per cent of the share capital and 53.2 per cent of the voting rights.

WM-data's chief executive Crister Stjernfelt is to join the LogicaCMG board and will be in charge of the Nordic region.

LogicaCMG expects annual cost savings of £15m from the deal by December 2008, although integrating the two businesses will cost it £22m over the next two years. Mr Read said the company remained on the prowl for further targets. "At some stage we would like to become bigger in Germany. Looking further out I'd hope we would have a bigger operation in Spain."