AMS stages its disappearing act

Merger expected to leave federal contracts unaffected

A major name among systems integrators will likely disappear in a few weeks, but federal customers of American Management Systems Inc. should not worry about the effect on ongoing projects, according to AMS officials.

Canadian outsourcing firm CGI Group Inc. plans to acquire most of AMS and has offered $19.40 a share, or $858 million in sum — a 26 percent premium over the 30-day average price when the offer was made. Meanwhile, CACI Corp. will purchase the assets of AMS' defense and intelligence operations for $415 million.

The transactions are expected to close in May. AMS and CGI are treating the transaction as a merger and plan to continue AMS' business activities, according to company officials.

AMS' employees will continue to work on projects, said Eileen Murphy, director of media relations at CGI. AMS will become CGI-AMS. Of AMS' 6,500 employees, 4,800 will join CGI, with the remainder going to CACI, she said.

CGI is a 20,000-employee information technology firm, specializing in outsourcing with revenues of about $20 billion annually, she said. The company has grown significantly through acquisition, adding 59 companies in less than two decades, she said. CGI officials are hoping to develop a strong U.S. government business through the AMS acquisition.

CGI chairman and chief executive officer Serge Godin knows Alfred Mockett, a former British telecom executive who became AMS' chairman and CEO at the end of 2001. Godin and Mockett had led the companies in talks for about a year, she said.

The acquisition comes after several troubled years for AMS with declining revenues and, most recently, a $26.3 million net loss for fiscal 2003 on revenues of $961.6 million. In 2001, it brought in $1.18 billion with a profit of $15.9 million. In 2002, officials reported $986.7 million in revenues and a net profit of $28.2 million.

Industry observers say AMS had trouble competing against bigger players and keeping up with changes in its markets.

"They just haven't been able to kick it over," said Larry Allen, executive vice president of the Coalition for Government Procurement. "For a number of years, AMS was seen as the go-to integrator for a number of state governments. When the state market dried up, I think AMS probably stayed too long at the dance."

Without identifying individuals, Allen blamed some in AMS' ranks. "They had a variety of people who felt they had been successful in the past and could continue to be successful in the future without changing the way they do things," he said. "AMS is inherently not a bad company. They've got some good thinkers. The key is being able to turn that into actionable solutions."

The merger gives AMS deeper resources, Mockett said in a recent conference call. "In business, scale matters," he said.

Donna Morea, AMS' executive vice president and general manager for the public sector, said the three-way deal is good for everyone concerned, including customers.

AMS intends the transition process to be clear and visible to customers and for projects to go on without interruption, she said.

Customers "will see the same faces, the same trusted partners," Morea said.

AMS has about 70 significant projects in the federal arena, she said.

The Defense Department's Standard Procurement System is one such project. Eventually expected to replace 76 procurement systems used across the department, the project has not been flowing smoothly. It was originally supposed to be ready in March 2000. In 2002, the department froze work on the project for a year in the wake of a General Accounting Office report criticizing management of the project.

Now, 23,000 DOD personnel are using the system, and 11,000 more will join them when the Defense Contract Management Agency deploys it, according to Col. Jacob Haynes, SPS project manager. He predicts full deployment by 2006.

"AMS' business decision will enhance our ability to deliver on SPS," Haynes said. "CACI is knowledgeable about SPS and the complexities of the DOD acquisition domain. They've been a subcontractor to AMS on the SPS contract since the beginning."

***

After the merger

Serge Godin, chairman and chief executive officer of CGI Group Inc., will be chairman and CEO of the combined entity after CGI merges with American Management Systems Inc.

The company will be known in the United States as CGI-AMS. It will have about 25,000 employees, $3 billion in annual revenue and a $10 billion contract backlog. CGI expects to have cross-selling opportunities by bringing its outsourcing services to AMS customers.

Source: CGI Group Inc.

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