9 October 2002 CMG and Logica, the UK’s two largest services companies, are in merger talks. Regulators forced the two companies to reveal the discussions, after dealers began buying and selling unusual numbers of Logica shares.

If a merger takes place, Logica shareholders will control 60% of the equity of the new company and CMG shareholders the rest. CMG executive chairman Cor Stutterheim would become non-executive chairman, while Logica head Martin Read would become CEO.

CMG’s market value stands at approximately £250 million, while Logica is valued at about £560 million. Both CMG and Logica were members of the FTSE 100 London stock market index during the technology boom, but their share prices have slumped by more than 95% in the last two years as demand for computer software and services has fizzled out.

CMG and Logica are the dominant suppliers in Europe for mobile phone text messaging implementation services. However, next generation multimedia messaging contracts are proving a tougher area for the two companies as they face increased competition from telecoms equipment makers Nokia and Ericsson.

In its last financial year to the end of March, telecoms-related work accounted for more than a third of Logica’s £1.1 billion (€1.74bn) revenues. CMG’s biggest sector is in government and outsourcing, which make up 28% of its £920 million (€1.46bn) revenue.

According to analysts, a deal would bring a much-needed level of consolidation to the over-crowded European services market and would make the merged company the third largest in Europe behind French groups Cap Gemini Ernst &Young (CGE&Y) and Atos Origin.

However, discussion are currently at an early stage and neither company expects to make an announcement for several weeks on the outcome of the talks.