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Logica soars 64% after £1.7bn agreed bid from Canada's CGI
Analysts say rival bid is a possibility but Canadian's already have acceptances worth 18%
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Another IT group has succumbed to a predator, with Anglo-Dutch group Logica agreeing a £1.7bn bid from Canada's CGI Group.
The agreed deal involves Logica shareholders receiving 105p in cash, but in the market the company's shares have jumped 42.1p to 107.8p - a 64% surge - with the outside chance of a counter bid. India's Infosys has been linked with Logica in the past, and private equity players could also be interested. Julian Yates at Investec said:
[A counter bid] can never be ruled out due to the bid price multiple which [at a PE of 10 times] does not carry a significant premium to peers.
Logica has significant structural issues and as CGI has stated, it expects to spend £165m on restructuring charges considering Logica staff base is largely in inflexible labour markets. From an anti-trust point of view we see limited issues. Indian players may be seen as counter bidders but this would represent a material strategic risk considering the cultural and business focus differences. Private equity we suspect would also look at the business but the cash costs needed for restructuring and already levered balance sheet may put off this camp of investors.
George O'Connor at Panmure Gordon said:
Logica is one of cheapest IT service companies, and even at acquisition multiples it is attractive enough to flush out another buyer. The potential buyers are numerous (start at IBM, or Accenture and just walk down the list) - and, as we have long argued, Logica is simply badly configured for the modern market and is fixable given strong resolute management. Second guessing the potential of a counter bid, the share price is likely to overshoot the 105p recommended price. For now, investors should buy to 105p, our new target price.
At the moment shareholders representing around 18% of the equity have agreed the deal, unless a rival bid emerges. Logica chairman David Tyler said:
David Tyler, Chairman of Logica, said:
Competitive intensity has increased as the industry has globalised and scale has become an ever more important factor in cost competitiveness and service. 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. For our shareholders, the offer represents an opportunity to realise a substantial premium in cash to the current share price.
The deal follows Hewlett Packard's takeover of Autonomy - which appears to have become acrimonious with the recent departure of the UK company's founder Mike Lynch - and the sale of Misys to Vista Equity Partners which is close to completion.
Overall the market is edging higher as investors try to come to terms with the latest eurozone developments, with the FTSE 100 up 42.73 points at 5340.01. Even so the index is on course for its worst monthly performance since August 2011, as the financial problems in Spain grew and worries about Greece leaving the eurozone increased following its inconclusive election.
Later come some US jobs figures, which will give a pointer to Friday's non-farm payroll numbers.
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