The Successful Investor Hotline – Friday, May 7, 2010

Article Excerpt

CGI GROUP INC., $14.90, Toronto symbol GIB.A, has agreed to buy Stanley Inc. (New York symbol SXE). Founded in 1966 by U.S. Navy Rear Admiral Emory Stanley, Stanley Inc. provides computer-outsourcing services, mainly to military and civilian agencies of the U.S. government. CGI aims to close the deal later this year. CGI is paying roughly $1.07 billion U.S. for Stanley. That’s equal to 26% of CGI’s $4.3-billion (Canadian) market cap. On March 31, 2010, CGI held cash of $419.1 million, or $1.47 a share, so it will need additional funds to complete this purchase. However, its long-term debt of $274.5 million is a low 6% of its market cap, so it can comfortably afford to borrow most of the price. Adding Stanley will diversify CGI’s U.S. operations. Following the purchase, defense and intelligence customers will represent 55% of its customer base, while the remaining 45% will come from civilian customers. CGI will also gain access to Stanley’s high-quality clientele, which should give…

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