CGI, BCE put off decision to sell voting-share stake

MONTREAL – The future of BCE Inc.’s involvement in CGI Group Inc. was supposed to be cleared up by now, but the two companies announced on Tuesday that talks are continuing

and that a decision on BCE’s future in the company will be made no later than August 1.

Late last year, BCE underwent a review of its vast operations and initially planned to dispose of its 29.9 per cent stake in CGI, but reconsidered. BCE originally invested $18 million in CGI in 1995 and has given the company several outsourcing contracts. On Dec. 18, BCE said it would decide its future involvement with the company on April 15.

There is speculation that CGI, which has largely grown through acquisitions, is about to make another one, resulting in the delay. The most often mentioned target is Xwave Solutions Inc., a top Canadian integrator which is owned by BCE-controlled Aliant Inc.

“”Everyone knows that Xwave is for sale and CGI is well-positioned to acquire it,”” said Pierre-Yves Terrisse, an analyst at Montreal-based Desjardins Securities Inc. “”BCE is slowly diluting its position in CGI and will continue to be involved with the company, but not at the current level.””

Both CGI and BCE said little other than to refer to their joint press release issued Tuesday morning, which also announced that Michael Sabia, president and CEO of BCE was joining the board of directors of CGI as one of BCE’s three nominees. He’s replacing BCE’s chief financial officer, Siim Vanaselja, who agreed to step down. None of the analysts read anything into the move.

“”Because it’s a very strategic partnership for both companies, we want to be sure we get it right,”” said Eileen Murphy, director of media relations at CGI. “”Not only does BCE own 29.9 per cent of CGI, but we have a 10-year, $4.5 billion outsourcing contract with them that was signed in 1998. We also bid on a lot of contracts together.””

“”All we’re doing is extending the deadline we set for ourselves in December,”” added Don Doucette, communications officer at BCE. “”The appointment of Michael Sabia was merely to facilitate the decision-making process and to help in getting a decision rendered as quickly as possible.””

The indecision by BCE is having a negative impact on CGI’s share price, which hasn’t moved in four months, noted analyst Steven Li at Raymond James Ltd., Toronto. He agreed that Xwave would be a logical takeover target for CGI.

“”On the other hand, CGI announced in November that it was looking at building critical mass in the U.S. and U.K and 95 per cent of Xwave’s sales are in Canada. But then again, the same thing happened with Cognicase (which CGI acquired late last year).””

There are a number of possible reasons for the delay, according to analyst Troy Crandall of MacDougall, MacDougall & MacTier, Montreal, who also was disappointed that BCE didn’t announce its intentions because of its negative impact on CGI’s share price.

“”BCE announced last December that it was getting back to basics and that CGI is not considered strategic. But maybe BCE decided that CGI’s share price is too low and now is not the time to exit. They can afford to wait, but in the long term, maybe five years from now or possibly sooner, I don’t think BCE will own part of CGI.””

Crandall also suggested that BCE may not be sure how to exit CGI without causing panic among CGI investors who might drive the share price even lower. He said BCE could buy out CGI’s three major shareholders and sell their shares on the open market or redistribute them to current BCE shareholders and let the shareholders decide the future of CGI.

“”There also might be something in the works with Xwave which could also increase CGI’s share value if investors see it as a complementary fit. But you can be sure there is a good reason for the delay, because it makes BCE look indecisive, so they probably hated making that decision.””

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