CGI’s £1.7 billion bid for UK-headquartered Logica is unlikely to face any counter-offers, according to specialist bank Investec Securities.
Even though the agreement represents a 59.8 percent premium on Logica’s closing share price the day before the deal was agreed, analysts commented a counter bid couldn’t be ruled out. It was suggested that Logica would be just as good a fit for T-Systems, Fujitsu or Japan-based NTT.
However, Investec has stated that “a counter bid in excess of 10 percent of the deal price would push total deal values to levels that start to overlook Logica’s structural challenges after allowing for the heavy restructuring price tag that would likely be needed.”
Investec currently forecasts that CGI’s offer implies a FY12E EV/EBITDA of 6.5x (a common ratio tool used to value a company’s stock and how expensive it is). It believes that any counter bid of above 10 percent of the current offer would push the EV/EBITDA to above 7x.
However, CGI has also said that it will spend £165 million on integration costs. Investec argues that these costs, coupled with modest forecast pressures and cash costs, could take the deal value for a counter bidder close to 8x EV/EBITDA.
“We would see [this] as expensive considering the structural pressures we believe Logica faces [and the] integration risks,” said Investec analyst Julian Yates.
Investec also conducted an analysis of potential firms that would possibly be interested in acquiring Logica and making a counter bid. However, it found “more reasons against than for” in most examples, which also suggests that a new potential buyer interrupting CGI’s deal is unlikely.
The general consensus of the analysis is that the deal would not make sense for Accenture, IBM, HP, Dell, CSC, Capgemini, Atos, BT or NTT. However, Investec did recognise that Fujitsu could still be a contender.
“[Fujitsu] has a good UK presence and is probably trying to expand its offering outside of the UK public sector and move up the value chain as its main operations have been focused on lower and managed services,” said Yates.
“Acquiring Logica could help to do this and also give more European exposure – we would see this deal stacking up better than one with a US or Indian acquirer.”
The acquisition has attracted a lot of attention from the analyst community and has also drawn some harsh criticism. Some commented that the deal highlights the failures of Logica’s management and that CGI will not create a new global business through integrating Logica’s European operations.
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