Logica to be acquired by CGI

Logica has announced that it has agreed a bid from CGI at 105p per share. This values Logica at £1.7b and represents a premium of c60% on Logica’s closing share price yesterday. The share price has already risen to 107p - so maybe a counterbid (and there are no shortage of possible candidates) will be flushed out?

CGI is an established Canadian SITS company with 31,000 employees and revenues of C$4.3b (c£2.6b) - i.e. much smaller than the c£3.9b revenues at Logica. CGI has very little revenue overlap with Logica’s UK and European operations. However, this is a huge acquisition for CGI. Acquisitions where the company being bought is >50% of the size of the acquirer almost always fail. CGI is actually smaller than Logica. Any follower of Holway's Acquisition Indigestion will know the reasons. On top of the CGI is not exactly a star performer - itself reporting declines in revenues and profits yesterday.

We will clearly report on this in more detail later. But the initial reaction is one of major sadness as yet another of the large and long established names from the UK’s strong technology background is acquired by an overseas predator. Logica joins the long list of ex-UK HQed IT services players like Hoskyns, SD-Scicon, CAP and software players like Misys and Autonomy and many others. Indeed, the UK now has no UK-HQed pure SITS players in the Top Ten suppliers to the UK market.

It is also hardly a ringing endorsement for Andy Green’s time as CEO. Let me update my post -  The Andy Green Green Years. 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 DECLINED 36% under his tenure. Conversely the FTSE SCS Index was 615 on the day of his appointment in 2007. It is now 838 – an INCREASE of 36%. Our post in Oct 07 on the news of his appointment - Andy Green to become Logica CEO -criticised Green's record at BT Global Services and questioned whether he was the right man for the Logica job.  We pointed out then that both companies had been slow to cut costs, slow to embrace the offshore model, slow to adapt to (or even accept) the new market conditions.

Any TechMarketView reader will know that we have given our ‘advice’ on what needed to be done at Logica on many occasions over many years. 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.

Note – Richard Holway is a long suffering Logica shareholder.