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CGI to Buy Stanley for $900 Million to Expand Its U.S. Government Business

CGI Group Inc., Canada’s biggest computer-services provider, agreed to buy Stanley Inc. for $903 million in cash to expand its U.S. government business.

CGI said today it will pay $37.50 a share for Arlington, Virginia-based Stanley, a premium of 29 percent over the stock’s closing price yesterday. Stanley provides technology services to military, intelligence and government agencies.

CGI Chief Executive Officer Michael Roach has said he wants to use acquisitions to tap U.S. government stimulus spending and compete with larger rivals like International Business Machines Corp., the world’s biggest computer-services company. Roach said in September he was willing to spend C$2 billion ($1.92 billion) on acquisitions.

Buying Stanley will lift the U.S. share of CGI’s total revenue to about 50 percent from 37 percent and give it entry into the U.S. defense and intelligence market, said UBS AG analyst Jason Kupferberg. CGI’s bigger challenge is increasing its presence in the U.S. corporate market, said Kupferberg, who has a “neutral” rating on the stock.

Stanley rose $7.79, or 27 percent, to $36.79 at 4 p.m. in New York Stock Exchange composite trading, to the highest level since October 2008. CGI fell 29 cents to C$14.90 in Toronto Stock Exchange trading. The stock has added 4.6 percent in 2010.

The deal will leave CGI with about C$600 million in cash and credit that it can tap for further possible acquisitions, company spokesman Lorne Gorber said.

“We’ve got room to acquire more,” he said.

Market Consolidation

CGI’s acquisition follows moves by its U.S. competitors to bulk up. Xerox Corp., based in Norwalk, Connecticut, completed its purchase of Affiliated Computer Services Inc. for about $6 billion in February to accelerate its focus on computer services amid declining sales of printing equipment. Dell Inc., the third-biggest personal-computer maker, bought Perot Systems Inc. in November for about $3.9 billion.

CGI’s customers include London-based bank Barclays Plc, Philadelphia-based insurer Cigna Corp., and U.S. federal government agencies.

CGI, based in Montreal, said it will pay for the acquisition with cash on hand and an existing credit facility. CGI said the deal’s enterprise value is about $1.07 billion.

Deutsche Bank AG and TD Securities acted as financial advisers to CGI. Sagent Advisors Inc. advised Stanley.

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

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