Globe & Mail article on Teleglobe acquisition.
Sal, here's the article that surely contributed to today's surge upwards (again!). When I checked at the open this morning, the stock was halted on the MSE and I have yet to find out why. I wondered how it came to pass that the first trade was at +30% from Monday's close. Looks like CGI will have to split again to increase liquidity :-)
CGI Group buys Teleglobe unit for $140-million
Acquires U.S. insurance systems firm
Tuesday, August 12, 1997
By Patrick Brethour
Technology Reporter
CGI Group Inc. said yesterday that it will buy the insurance systems unit of Teleglobe Inc. for $140-million in cash and preferred shares, the largest acquisition in the 21-year history of the Montreal technology consulting company.
In the wake of the early morning announcement, CGI shares rose $2.75 to $27.90 on a post-split basis on the Montreal Exchange yesterday, closing at their highest level to date. In intraday trading, however, the stock touched $28.40. The shares formally split today on a two-for-one basis.
If approved by regulators, the deal will give CGI an established beachhead in the United States as the company seeks to expand its outsourcing business -- running the information technology systems of other firms -- in the financial services industry.
In addition to $20-million, Montreal-based Teleglobe gets a 20-per-cent stake in CGI and divests itself of a business that falls outside of its telecommunications focus.
Serge Godin, CGI's chairman and chief executive officer, said the deal is part of his company's push to expand into the United States and boost the amount of its revenue coming from outsourcing, especially in the financial services sector.
He said outsourcing contracts have a more stable profit margin than other parts of CGI's business, such as consulting or systems integration.
Mr. Godin said outlays for electronic commerce services in the next few years will create booming demand for outsourcing in the financial sector. In Canada, looming deregulation of the banking and insurance industries could provide an added boost, Mr. Godin said.
Louis Wermenlinger, director of research for Desjardins Securities Inc. in Montreal, agreed with Mr. Godin's assessment, saying that demand for outsourcing services in the financial sector will continue to grow. "It's really accelerating."
Mr. Wermenlinger said CGI has changed dramatically over the past 18 months, transforming itself from a $100-million company focused on consulting and computer systems integration to a firm with nearly $500-million in annual sales, largely from outsourcing contracts.
Despite the size of the acquisition -- an increase in revenue of 62 per cent -- Mr. Godin said CGI will step up the pace of its purchases. "We are going to accelerate."
CGI's proposed acquisition, ISI Systems Inc. of Andover, Mass., is the third-largest supplier in North America of outsourcing services to property and casualty insurance companies. Fifty-six per cent of its 12-month revenue of $163.5-million is derived from the United States.
By contrast, only 4 per cent of CGI's revenue comes from the United States. That figure will rise to 27 per cent if, as expected, the deal proceeds.
The acquisition, which is to close Sept. 30, will boost CGI's revenue by 62 per cent, adding the unit's projected 1997 revenue of $185-million to its own projected $300-million.
Of CGI's projected post-acquisition revenue of $485-million, 58 per cent will come from providing outsourcing services to the financial services industry, up from the current 35 per cent. Before the April purchase of CDSL Holdings Ltd. for $36.5-million in cash and stock, CGI derived only 20 per cent of its revenue from financial services.
That concentration will likely be a temporary phenomenon, however. Mr. Godin said future acquisitions will be in other sectors, although they will be focused on outsourcing services.
With the latest acquisition, CGI gets about 70 per cent of its revenue from outsourcing, up from 60 per cent.
Mr. Godin said the increasing importance of outsourcing allowed CGI to increase profit in its third quarter, which was reported yesterday. The company earned $2.4-million or 25 cents a share, up 178 per cent from the year-earlier $867,000 or 10 cents. Revenue in the quarter just ended was $70.8-million, up 119 per cent from $32.4-million a year ago.
The company's profit margin from operations rose to 11.6 per cent in the quarter just ended from 8.2 per cent a year ago because of a higher proportion of revenue from outsourcing, Mr. Godin said. |
