CGI announces intent to repurchase 1.67 million of its shares

Rhea-AI Summary

CGI (TSX: GIB.A) (NYSE: GIB) announces a private agreement with Founder and Executive Chairman for the repurchase of 1,674,930 Class A shares at a discount of 3%. The total consideration is $250 million, funded from cash on hand. The Special Committee and Board of Directors unanimously approved the transaction, benefiting shareholders. The transaction is for estate planning purposes, reducing Mr. Godin's voting rights slightly.

Insights

Financial Analyst

The repurchase of CGI's Class A subordinate voting shares by the company's founder and Executive Chairman, Mr. Serge Godin, represents a significant financial transaction with a total value of $250 million. This buyback at a 3% discount to the market price is a strategic move that can have several implications. Firstly, it signals confidence from the company's founder in the firm's intrinsic value. Secondly, the transaction will result in a reduction of the outstanding shares, which may lead to an increase in earnings per share (EPS) and potentially enhance shareholder value.

The funding of this repurchase from the company's cash reserves is an indication of CGI's liquidity and financial health. However, investors should consider the impact this expenditure might have on the company's ability to invest in growth opportunities or withstand unforeseen expenses. The involvement of a Special Committee and external advisors in the approval process is a positive sign of due diligence and corporate governance, which can reassure investors about the fairness of the transaction.

Market Research Analyst

The transaction's impact on CGI's stock market dynamics should be monitored closely. As the repurchase is part of a normal course issuer bid (NCIB), it is part of a larger program authorized to repurchase up to 20,457,737 Class A Shares. Such repurchase programs are typically viewed favorably by the market as they can indicate the management's belief that the stock is undervalued. Additionally, the reduced share count may improve financial ratios like return on equity (ROE), which could make the stock more attractive to investors.

It's also noteworthy that Mr. Godin's voting rights post-transaction will decrease marginally, yet he maintains a majority control. This could have implications for investor perception regarding control and decision-making within the company. The transaction's effect on share price and market perception could vary depending on the investors' interpretation of the underlying motives and the potential for future growth.

Legal Expert

The legal aspects of this transaction are critical to ensure compliance with securities regulations. The exemption obtained from the Autorité des marchés financiers (Quebec securities regulator) indicates that CGI is proceeding with due regard to legal requirements, which is essential for maintaining investor trust. The decision to exempt CGI from the issuer bid requirements suggests that the transaction does not raise concerns that would typically necessitate a more extensive regulatory review.

Investors should appreciate that all non-independent directors abstained from voting on the transaction, which minimizes potential conflicts of interest. This adherence to strong corporate governance practices is important for maintaining the integrity of the transaction and the trust of stakeholders.

Stock Market Symbols
GIB.A (TSX)
GIB (NYSE)
cgi.com/newsroom

MONTRÉAL, Feb. 23, 2024 /PRNewswire/ - CGI (TSX: GIB.A) (NYSE: GIB) announced today that it intends to enter into a private agreement with Mr. Serge Godin, Founder and Executive Chairman of the Board of CGI, for the purchase for cancellation of 1,674,930 Class A subordinate voting shares ("Class A Shares") indirectly held by him at a price of $149.26 per Class A Share, for a total consideration of $250 million. The price represents a discount of 3 percent (3%) to the closing price of the Class A Shares on the Toronto Stock Exchange ("TSX") on February 22, 2024. CGI will fund the repurchase from cash on hand.

A Special Committee of CGI's Board of Directors, composed exclusively of independent directors, was established in connection with the share repurchase. After consultation with its external legal advisor Norton Rose Fulbright Canada LLP and financial advisor National Bank Financial Inc. and the receipt of an opinion regarding the reasonableness of the terms of the transaction from National Bank Financial Inc., the Special Committee unanimously determined that the share repurchase was in the best interest of the Company and recommended that the Board of Directors approve the transaction. Following the recommendation of the Special Committee, the share repurchase was also unanimously approved by the Board of Directors. All non-independent directors, including Mr. Serge Godin, refrained from participating in the Board of Directors' deliberations and from voting on matters relating to the transaction. A favourable decision was obtained from the Autorité des marchés financiers (Quebec securities regulator) to exempt CGI from the issuer bid requirements under applicable securities legislation.

Michael B. Pedersen, Chair of the Board of Directors' Special Committee, noted that: "This strategic transaction presented a good opportunity to repurchase shares at a discount and offers immediate value to our shareholders."

The transaction is entered into by Mr. Godin for estate planning purposes.

After completion of the transaction, there will be 206,130,115 Class A Shares and 25,179,340 Class B shares (multiple voting) of CGI issued and outstanding. Mr. Godin will continue to beneficially own, directly or indirectly, or exercise control or direction over 53.0% of the total voting rights and 10.5% of the CGI issued and outstanding shares compared with 54.3% and 11.1% respectively prior to the transaction.

The share repurchase, which is expected to be entered into later today, will be made under CGI's normal course issuer bid ("NCIB") commenced on February 6, 2024. Under the NCIB, CGI is authorized to repurchase up to 20,457,737 Class A Shares until the earlier of February 5, 2025 or the date on which CGI will either have acquired the maximum number of Class A Shares allowable under the NCIB or otherwise decided not to make any further purchases for cancellation under it. The NCIB allows for purchases outside the facilities of the TSX by private agreements pursuant to exemption orders issued by securities regulators. As at February 22, 2024, CGI had not repurchased any Class A Shares under its current NCIB.

Information regarding the share repurchase, including the number of Class A Shares purchased for cancellation and aggregate price paid, will be available on the SEDAR+ website at www.sedarplus.ca following the completion thereof. CGI will not issue any additional press release in respect of this share repurchase.

About CGI
Founded in 1976, CGI is among the largest independent IT and business consulting services firms in the world. With 90,500 consultants and professionals across the globe, CGI delivers an end-to-end portfolio of capabilities, from strategic IT and business consulting to systems integration, managed IT and business process services and intellectual property solutions. CGI works with clients through a local relationship model complemented by a global delivery network that helps clients digitally transform their organizations and accelerate results. CGI Fiscal 2023 reported revenue is $14.30 billion and CGI shares are listed on the TSX (GIB.A) and the NYSE (GIB). Learn more at cgi.com.

Forward-looking information and statements
This press release contains "forward-looking information" within the meaning of Canadian securities laws and "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and other applicable United States safe harbours. All such forward-looking information and statements are made and disclosed in reliance upon the safe harbour provisions of applicable Canadian and United States securities laws. Forward-looking information and statements include all information and statements regarding CGI's intentions, plans, expectations, beliefs, objectives, future performance, and strategy, as well as any other information or statements that relate to future events or circumstances and which do not directly and exclusively relate to historical facts. Forward-looking information and statements often but not always use words such as "believe", "estimate", "expect", "intend", "anticipate", "foresee", "plan", "predict", "project", "aim", "seek", "strive", "potential", "continue", "target", "may", "might", "could", "should", and similar expressions and variations thereof. These information and statements are based on our perception of historic trends, current conditions and expected future developments, as well as other assumptions, both general and specific, that we believe are appropriate in the circumstances. Such information and statements are, however, by their very nature, subject to inherent risks and uncertainties, of which many are beyond the control of CGI, and which give rise to the possibility that actual results could differ materially from our expectations expressed in, or implied by, such forward-looking information or forward-looking statements. These risks and uncertainties include but are not restricted to: risks related to the market such as the level of business activity of our clients, which is affected by economic and political conditions, additional external risks (such as pandemics, armed conflict, climate-related issues and inflation) and our ability to negotiate new contracts; risks related to our industry such as competition and our ability to develop and expand our services, to penetrate new markets, and to protect our intellectual property rights; risks related to our business such as risks associated with our growth strategy, including the integration of new operations, financial and operational risks inherent in worldwide operations, foreign exchange risks, income tax laws and other tax programs, the termination, modification, delay or suspension of our contractual agreements, our expectations regarding future revenue resulting from bookings and backlog, our ability to attract and retain qualified employees, to negotiate favourable contractual terms, to deliver our services and to collect receivables, to disclose, manage and implement environmental, social and governance (ESG) initiatives and standards, and to achieve ESG commitments and targets, including without limitation, our commitment to net-zero carbon emissions by 2030, as well as the reputational and financial risks attendant to cybersecurity breaches and other incidents, and financial risks such as liquidity needs and requirements, maintenance of financial ratios, interest rate fluctuations and the discontinuation of major interest rate benchmarks and changes in creditworthiness and credit ratings; as well as other risks identified or incorporated by reference in this press release, in CGI's annual and quarterly MD&A and in other documents that we make public, including our filings with the Canadian Securities Administrators (on SEDAR+ at www.sedarplus.ca) and the U.S. Securities and Exchange Commission (on EDGAR at www.sec.gov). Unless otherwise stated, the forward-looking information and statements contained in this press release are made as of the date hereof and CGI disclaims any intention or obligation to publicly update or revise any forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. While we believe that our assumptions on which these forward-looking information and forward-looking statements are based were reasonable as at the date of this press release, readers are cautioned not to place undue reliance on these forward-looking information or statements. Furthermore, readers are reminded that forward-looking information and statements are presented for the sole purpose of assisting investors and others in understanding our objectives, strategic priorities and business outlook as well as our anticipated operating environment. Readers are cautioned that such information may not be appropriate for other purposes. Further information on the risks that could cause our actual results to differ significantly from our current expectations may be found in the section titled Risk Environment of CGI's annual and quarterly MD&A, which is incorporated by reference in this cautionary statement. We also caution readers that the above-mentioned risks and the risks disclosed in CGI's annual and quarterly MD&A and other documents and filings are not the only ones that could affect us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial could also have a material adverse effect on our financial position, financial performance, cash flows, business or reputation.

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SOURCE CGI Inc.

FAQ

What is the purpose of the private agreement announced by CGI?

The private agreement is for the repurchase for cancellation of 1,674,930 Class A shares held by Mr. Serge Godin at a discount of 3%.

How will CGI fund the repurchase of the Class A shares?

CGI will fund the repurchase from cash on hand.

Who approved the share repurchase transaction?

The Special Committee and Board of Directors of CGI unanimously approved the share repurchase.

What percentage of voting rights will Mr. Godin have after the transaction?

After the transaction, Mr. Godin will have 53.0% of the total voting rights, slightly lower than the 54.3% prior to the transaction.

What is the total number of Class A and Class B shares of CGI after the transaction?

After the transaction, there will be 206,130,115 Class A shares and 25,179,340 Class B shares of CGI issued and outstanding.