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IT services firms Capgemini and Kanbay to merge in $1.25 billion deal.

Last week, Paris-based consulting and IT outsourcing firm Capgemini announced it will acquire Kanbay, a Chicago-based global IT services firm, for $29 per share or $1.25 billion. The deal is subject to shareholder and regulatory approval, but the companies anticipate a close by the end of the year, said Salil Parekh, Capgemini's North America CEO, during a teleconference. Once the transaction is complete, Kanbay will be fully absorbed into Capgemini and will operate under that name. Kanbay's chairman and CEO Raymond Spencer will take on a top management role at Capgemini.

According to Parekh, the acquisition will further strengthen Capgemini's presence in the financial services sector and "reconfirms" its commitment to customers in this space by on-boarding Kanbay's financial services specialists. "If you look at Kanbay's financial services practice, there is deep expertise in transaction services, compliance, risk management, securities, data management. These are all areas any financial services CIO has an interest in,"— especially as areas to leverage in an offshoring model. He went on to say that by bringing the resources from Kanbay into the fold, the combined companies will be able to offer a better price point for offshoring/outsourcing services.

Kanbay was a natural fit for Capgemini, Parekh explained. His firm introduced a new transformation/expansion initiative called "I cubed," a program that focuses on three elements: industrialization, intimacy with clients and innovation. "This acquisition helps us in all three of these dimensions," stated Parekh. "For us, it's a strategic deal in line with our transformation program."

After suffering from the effects of shrinking revenue and negative profit margins about a year ago, Parekh said the new Capgemini will display a "completely new dynamic. We'll become a completely different animal with faster growth and greater margins while leveraging the big North American trend of offshoring."

Kanbay has 6,700 employees, 5,100 of which are in India. That fact alone helps Capgemini along in its ambitions to grow its presence in the subcontinent to 30,000 by 2010. It currently has approximately 12,000 workers in that country. Kanbay also brings to the table an impressive roster of blue chip clients, including financial services giants HSBC, Citigroup, Morgan Stanley and AIG. The company hopes to gain a leadership position in North America and the UK by inheriting these relationships.

"This deal shows we are back on the offense. It demonstrates our commitment to the North American market. It demonstrates our strong focus on the financial services market and our expanding offshore capabilities," concluded Parekh.

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