Information technology and business processing services provider CGI Group Inc. (GIB, GIB_A.TO) and Stanley Inc. (SXE), a provider of IT services to U.S. defense, intelligence and federal civilian government agencies, have entered into a definitive merger agreement, whereby Montreal, Canada-based CGI would acquire Stanley through a cash tender offer of $37.50 per share, CGI said Friday. The offer represents an enterprise value of about $1.07 billion, and expands CGI's business in the U.S.
The offer price represents a premium of 23.3% over Arlington, Virginia-based Stanley's 30-day volume weighted average stock price and 38.3% over its 60-day average. The deal is expected to be accretive to GAAP earnings per share within the first 12 months.
As per the agreement, CGI will commence a cash tender offer for Stanley's common stock and the offer is expected to close during the fall of 2010. A break-up fee is payable to CGI under certain circumstances. The agreement also includes a provision under which Stanley has agreed not to solicit competing offers.
The transaction, which will be funded from CGI's cash on hand and existing credit facilities, has been unanimously approved by the board of directors of both companies. Certain Stanley board members and executive officers have also signed a voting agreement in support of the offer. Stanley's board intends to recommend that its shareholders accept this offer.
As per calendar 2009 results, the combined companies would have total revenues of about $4.5 billion, 31,000 employees and a booked backlog of over $13.5 billion.
The deal is expected to bring additional scale to CGI's U.S. operations, which would account for nearly half of its global revenue. According to CGI, the combination of its U.S. federal business unit and Stanley brings additional resources and capabilities to the U.S. Government market.
The deal also marks CGI Federal's expansion into the U.S. defense and intelligence markets. With this acquisition, CGI Federal joins a select list of Federal IT contractors with more than $1 billion in revenue, the company said.
Stanley will become part of CGI Federal Inc., a wholly-owned subsidiary that currently provides services to the U.S. Federal, defense, intelligence and civilian agencies.
After the completion of the transaction, CGI Federal will have about 7,000 professionals and annual revenue of $1.2 billion. Its client base will be a blend of 55% defense and intelligence and 45% U.S. Federal civilian agencies. CGI Federal will continue to be led by its current President George Schindler.
CGI said the consolidated company would continue to serve all three branches of government, 12 Cabinet-level agencies, the four military services, and a broad range of intelligence and national security agencies.
Michael Roach, President and CEO, of CGI said, "The acquisition of Stanley is in line with our Build and Buy profitable growth strategy, and is consistent with our commitment to continue expanding our footprint in the strategic U.S. market and specifically in the U.S. federal market."
Deutsche Bank and TD Securities acted as financial advisors to CGI. Holland & Knight LLP, Kaye Scholer LLP and Fasken Martineau DuMoulin LLP, provided legal advice to the company.
Sagent Advisors Inc. served as financial advisor to Stanley in connection with the transaction. Stanley has been represented by Cravath, Swaine & Moore LLP and Covington & Burling LLP.
Late last month, CGI said its second-quarter net earnings rose to C$81.6 million from C$77.8 million in the prior-year period. On a per share basis, earnings rose to C$0.28 from C$0.25 a year earlier. Quarterly revenues decreased to C$910.4 million from C$948.3 million owing to unfavorable currency impact.
Stanley is expected to report fourth-quarter results on May 18. Analysts expect the company to earn $0.47 per share on revenues of $220.36 million.
GIB closed Thursday's regular trade at $14.44, down from the prior close of $14.73, on 233,900 shares.
SXE ended Thursday lower at $29.00, compared to the prior close of $31.00, on 322,300 shares.
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