CGI: Takeover Target or Acquisition Mode?

In a consolidating tech services world, is CGI Group (GIB) a diner, or dinner?

That strategic issue - whether CGI Group is a possible takeover target, or if it will do acquisitions - is top of mind in the wake of Dell’s (DELL) $3.9-billion (U.S.) bid for Perot Systems (PER) on Monday.

This tech takeover is seen as largely positive for CGI, as it points out the value that insiders such as Dell attach to the services side of the business. In a report Tuesday, RBC Dominion Securities pointed out that “CGI and Perot do not directly compete, however, CGI may benefit as a remaining pure-play hardware-agnostic vendor.”

If CGI Group did attract a suitor, any deal would play out at prices well above where the stock is now changing hands.

Perot Systems is to be purchased for a stunning 30 times its forecast earnings per share, according to RBC Dominion. CGI changes hands at 11 times forecast earnings, and peers in this space command 16 times forecast earnings.

After crunching the numbers, RBC Dominion said any acquisition of CGI Group would likely take out at 14 to 15 times earnings, or $16 to $17 a share, a substantial 30-per-cent plus premium to where the stock trades. The investment dealer added: “Potential acquirers include Cisco, Microsoft, IBM.”

However, there is no sense that CGI Group is actually going to be taken over. In fact, the opposite is true: The company has taken pride in its independence in the past, and has done a string of acquisitions of its own to build the business. If CGI does decide to keep pace with the likes of Dell by staging its own takeover of a smaller rival, that strategy will weigh heavy on the stock price. -- Andrew WIllis