Takeover offer by Canadian rival sends Logica's shares soaring
Friday 01 June 2012
Logica shares rocketed up 69 per cent yesterday after the British IT services group said it had agreed to a £1.7bn takeover by Canada's CGI Group.
CGI tabled an offer of 105p, but traders reckoned a rival bidder could emerge as they pushed Logica's shares up 45.2p to 110.9p.
Logica's board, led by chairman David Tyler, has unanimously backed the sale and it also has the support of 18 per cent of shareholders.
Mr Tyler said there was "a strong industrial logic" for the merger because the IT industry "has globalised and scale has become an evermore important factor in cost competitiveness and service".
He added that "considerable economic uncertainty" in Logica's main European markets was another reason to sell to CGI.
The £1.7bn valuation is 6.6 times underlying earnings or Ebitda.
George O'Connor, an analyst at broker Panmure Gordon, said that the bid could "flush out another buyer" as Logica still looked cheap even after this approach.
"The share price is likely to overshoot the 105p recommended price," he added, noting there are "numerous" other potential buyers, including IBM and Accenture.
Logica's shares were trading at 140p a year ago, but the company has been dogged by problems. Operating profits more than halved last year and it made 1,300 people redundant.
Logica's chief executive Andy Green waived his long-term bonus last month "given the impact of the restructuring".
"Logica is simply badly configured for the 'modern' market and is 'fixable' given strong, resolute management," declared Mr O'Connor.
CGI, which is based in Quebec and listed on the Toronto Stock Exchange, has a market capitalisation of £3.4bn.
Buying Logica would give CGI a total value of £5.1bn, enabling it to leapfrog the troubled BlackBerry maker Research In Motion and become one of the leading technology companies in Canada.
Any sale would mean a fees windfall for the banking advisers.
Rothschild, Bank of America Merrill Lynch and Deutsche are acting for Logica, while Goldman Sachs International is working for CGI.
The City's two leading public relations firms, RLM Finsbury and Brunswick, are advising CGI and Logica respectively.
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