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June 1, 2012

UK IT services firm Logica to be acquired by Canadian rival

Struggling Logica becomes latest UK company to fall under American ownership

By Steve Evans

UK IT services firm Logica has agreed to be acquired by Canadian rival CGI Group for £1.7bn.

The company claims the offer of 105p per share represents a 60% premium on its price at the close of trading on Wednesday and is good value for its shareholders.

"Competitive intensity has increased as the industry has globalised and scale has become an ever more important factor in cost competitiveness and service," said Logica chairman David Tyler. "Additionally, in Logica’s main European markets there is considerable economic uncertainty, which affects confidence and demand from both public and private clients. The Logica directors consider there to be a strong industrial logic for the proposed combination with CGI."

"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," he added.

The company has been steadily losing value over the last couple of years as it struggles with reduced spending during the economic crisis. It had to issue two profit warnings in that time and also axed over 1,000 staff as it looked to reduce costs.

Consolidation in the IT services industry has seen rivals such as EDS and Perot Systems acquired by larger tech players like HP and Dell. They have been mooted as possible counter bidders, along with some of the Indian outsourcing giants and European companies such as Cap Gemini and Atos Origin.

Richard Holway of TechMarketView, seemed to put the blame for Logica’s decline squarely at the door of CEO Andy Green.

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"It is hardly a ringing endorsement for Andy Green’s time as CEO," he wrote. "When Green’s appointment was announced on 9th Oct 2007, Logica’s share price closed at 164p. So even with today’s premium, the share price has decline 36% under his tenure."

"It really could have been so very different. This is not a case of blaming ‘market conditions’. This is a failure of execution. The result – apart from some terrible returns for shareholders – is the loss of another part of the UK’s fine tech heritage," Holway added.

This deal represents the third occasion in recent times a UK technology company has been acquired by a North American firm.

In March 2012, UK banking software services company Misys agreed to be purchased by equity firm Vista Equity Partners for €1.27bn. In September last year UK software giant Autonomy was acquired by HP for nearly $11bn. That acquisition has not gone too well, and Autonomy founder Mike Lynch recently left the company.

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