Logica and CGI Wedding Bells at last? Don’t bet on it!

Logica and CGI Wedding Bells at last? Don’t bet on it!

The news that a mostly unknown Canadian service provider (CGI) has put a cash-only bid to purchase the archetypal old fashioned British jewel of Logica should come as no surprise to the markets. Valued, until the bid arrived, at half of what it was worth a year or so ago, still means that even after the impressive market lead leap of 62% of today the market price still is 20-25% below that of a year ago.

Logica’s lacklustre performance under CEO Andy Green has always been down to two things, under-ambitious and complacent management especially in Sales and Service Delivery. This latter weakness used to be balanced by the superb staff who inevitably carried the day by walking not just the extra mile for the client, but the extra two or three miles or whatever was needed.

Green has somehow never understood the need to take an axe to Sales leadership and singularly failed to force through technological advances, particularly in automation and remote infrastructure management. As a consequence, Logica is left with too high a cost base and a muted pipeline. In today’s market this is a less than positive place to be, especially with the increased shareholder scrutiny and militancy we have witnessed in recent months.

What of CGI? CGI is a good solid but slow company with a good telecoms and infrastructure support pedigree, but with little if anything to offer Logica who has developed and implemented and run far more sophisticated systems, such a commodities dealing desks, MoD critical applications, etc. CGI’s presence in the UK has been almost at “rep office” level up to now and they almost certainly cannot add to the Sales and Delivery quandaries. So at street level at least there are no integration issues, no conflicts of interest, no cross-over of services of any significance. So with so little in common why go through with the acquisition? It is easy to see CGI’s logic of up-skilling and adding real value to their existing services, clients and geographic reach, and importantly access to that most lucrative of client’s, Her Majesties Government. Something all US service companies crave. It is easy to see that at a 25% discount over a year ago, Logica may appear to be a bargain. But what’s in for Logica?

Andy Green’s five years is up in December 2012 and he would love this deal as a fitting epitaph to his stewardship. The all cash offer from CGI is reasonably good, but will no doubt be increased by a “white knight”, an industry trouble maker or by threats from the Logica shareholders indicating a “no” vote in next month’s Shareholders Meeting. Either way, shareholders should demand more, much more.

But think the unthinkable for a minute. What if CGI pulls out? What fate would befall Logica in the mid-term? Would they continue without severe client reaction?

Now think again. What if CGI succeeds? What fate would befall Logica in the mid-term? After all the track record of American companies totally destroying the value of their British acquisitions is obscenely impressive just see what HP has done to Autonomy.

What of Logica’s loyal client base? Shareholders must act responsibly by thinking this through very thoroughly.

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One Response to Logica and CGI Wedding Bells at last? Don’t bet on it!

  1. itQeAMk1 says:

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