The combined workforces of Logica and CMG face the prospect of more layoffs as the boards of the respective companies approved a merger and cost-cutting plan.

The merger plan will see Logica buy rival CMG for £512 million in stock, creating one of the largest computer services companies in Europe.

Logica said it will pay 0.4827 a share for each share in CMG in a transaction that values each CMG share at about £0.8254, a 7.2 per cent premium on Monday's closing price in London. Logica shareholders will own 60 percent of the combined business, which will be called LogicaCMG

When the merger is completed, the new entity will shed about 6 per cent of its workforce, or 1,440 of the 24,000 employees in the combined company. Logica said the merger will allow the combined firm to gain an operational cost saving of £60 million per annum by rationalising marketing, sales, distribution and back office activities, particularly in wireless telecoms.

"The cuts have only been agreed in principle, we haven't gone into the fine details," Will Cameron, Media Manager at Logica told ElectricNews.Net. "However my understanding is that the cuts will take place right across the organisation and we're in discussions with employee representative groups."

Around half of £60 million of the savings that the company expects to realise are expected within fourteen months and the remainder by December 2004. Two-thirds of the expected savings are to come from the IT services sector of the company with the other third coming from wireless telecoms. The company expects to take a cash charge of £80 million which it expects to reported as exceptional items in the six months 30 June 2003.

Cor Stutterheim, the executive chairman of CMG, is to become the non-executive chairman and Martin Read, managing director and chief executive officer of Logica, is to become the group chief executive of the combined companies.

Both companies are suffering from weak demand due to the telecoms and IT slump. In its annual results for the year ending on 30 June, Logica announced revenues of £1.1 billion, down slightly from £1.13 billion a year ago. The company's operating losses were £219.7 million, down from an operating profit of £120.7 for the previous year.

UK-based CMG recently announced that it was experiencing some of the most difficult trading conditions in the ICT service markets in its 38-year history. For the six months to the end of June 2002 the company had losses of £4.3 million, a vast improvement on the £22.5 million losses it made in the same half in the previous year.

© ENN