Logica in $1.7bn Swedish expansion

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LogicaCMG will consolidate its position as the second-largest IT services company in Europe following Monday’s agreed SKr11.9bn ($1.7bn) acquisition of Sweden’s WM-data.

But the Anglo-Dutch company’s shares fell sharply amid concerns that it was paying too much in a deal that could propel it back into the UK’s bluechip FTSE 100 index. They closed down 7.5 per cent at £159.50 yesterday.

“This is geographic expansion at a very high price,” said Hans Slob, an analyst at Rabo Securities. “We have serious doubts about this acquisition.”

It is the latest in a series of takeovers that has transformed Logica from a small IT services company in the 1960s to a significant European player today. Last year it agreed to acquire France’s Unilog for €931m ($1.2bn) and has since been searching for a fourth large European “profit centre” to complement the UK, the Netherlands and France.

“We will certainly be of the size following the acquisition of WM-data where we can win most of the contracts that we would want to go after,” said Martin Read, Logica’s chief executive.

Logica has offered SKr11.9bn to buy WM-data in shares and cash. The price has already been approved by WM-data’s largest investors – including Thord Wilkne, the company’s founder – holding voting rights of 53.2 per cent.

The offer of SKr27.75 a share represents a premium of about 25 per cent over WM-data’s closing share price over the past three months.

The deal will confirm Logica as the second-largest IT services company in Europe behind France’s CapGemini by market value. It will also add new Nordic customers such as Saab, the Swedish carmaker owned by General Motors, and Nokia and SonyEricsson, two of the world’s largest telecoms manufacturers.

Not all analysts were sceptical about the price. One said that without driving such consolidation “you’re going to be stuck in the middle. You can be a niche player or you need to be pan-European and ideally international. It will give them more clout.” At 15 to 16 times underlying 2006 earnings, the deal did not look expensive, he added.

Mr Read said he still wanted the company to become a top-10 global group but integration would take priority. The company enters the world’s top-20 IT services groups with the WM-data acquisition but would need another £1.5bn ($2.8bn) of revenues, according to one observer, for Mr Read to fulfil his ambition.

He is known as a leading voice in the industry warning about the UK’s position in IT services. He believes the challenge from India and China could prove too much to the country without an overhaul of education and training.

Logica was advised by ABN Amro and Merrill Lynch, while WM-data was advised by Morgan Stanley.

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