a Friday morning teleconference, CGI chairman and CEO Serge Godin outlined his plans to buy out Cognicase’s outstanding shares at $4.25 each in a deal worth $313 million. He said he approached Cognicase about the offer several weeks ago, but chief executive Ronald Brisebois refused to take his meeting.
Godin then met with Cognicase’s largest shareholder, the National Bank of Canada (NBC), which has a 15 per cent stake in the company. “”Together we came to the conclusion that we should proceed with the bid because we felt so strongly about the benefits of a merger,”” said Godin.
In addition to being its largest shareholder, NBC is Cognicase’s largest customer. NBC has entered into a conditional agreement to tender its Cognicase shares to CGI and extend pre-existing contracts with Cognicase to 10 years should the acquisition go through.
“”For us, it’s a good business opportunity,”” said NBC spokesperson Denis Dubé, adding that the agreement with CGI doesn’t preclude NBC from considering competing bids for its Cognicase shares.
The acquisition would give CGI added strength and stronger expertise in financial services, oil and gas, government and business process outsourcing, Godin said. Two weeks ago, CGI delivered its fourth quarter financial results and a three-year strategic plan to become an “”IT domain consolidator.””
“”The bid we announced this morning to acquire Cognicase is right in line with our strategy,”” said Godin. “”If this bid is successful, this move to consolidate in Canada will allow us to target $4 billion-plus (in revenue) instead of the $3.5 billion target we had recently shared with you.””
A Cognicase acquisition would effectively remove it from competing against CGI. “”Cognicase is Canada’s second-largest independent IT services provider and our bid was a prudent strategic move from a competitive standpoint,”” noted Godin.
It may be premature to call CGI’s offer a hostile takeover, said IDC Canada Inc. analyst Jason Bremner, but when a company’s largest shareholder accepts bids from a rival, “”it’s not always going to go over well. . . . I would call this an ‘eat the young’ type of strategy,”” he said.
“”Cognicase was certainly growing. I think it’s safe to say it hit some bumps in the road, particularly with its stock price, but it doesn’t necessarily mean their strategy was completely incorrect.””
It may have been Cognicase’s steady stock decline over the past year that caught CGI’s attention and made the company ripe for a takeover. At press time, Cognicase stock was trading at $3.95.
Barring extensions, CGI’s $4.25 offer is on the table until Jan. 13, 2003. If the offer is accepted, Godin said he expects the deal to be completed by the end of January. It would take about three to six months for the two companies to integrate, he said, and would be fairly smooth considering that both CGI and Cognicase share many of the same markets and territory.
Cognicase has built its own critical mass in the past year or two through acquisitions such as Toronto financial ASP Ezenet in July 2001, as well as Calgary-based Applied Terravision and Quebec City-based AVI Software Inc. in January 2002.
Godin said that CGI had expressed interest in the companies that Cognicase acquired, but didn’t want to pay for them at that price. Among CGI’s acquisitions this year were INSpire Insurance Solutions Inc., which closed on Dec. 2 and the Underwriters Adjustment Bureau, which is expected to close on Jan. 1, 2003. In Feb. 2001, CGI spent US$438 million to buy IMRglobal.
Cognicase issued a statement saying that it will put together a special committee to consider CGI’s bid. In the statement, Cognicase CEO Brisebois commented that the $4.25 offer was low and “”does not reflect the value-added expertise of our employees, the quality of our client base, and . . . leadership position in certain industry sectors.””
The company did not return calls for comment at press time.