CGI says the acquisition will give the company scale and expand its presence in the US markets. As part of the transaction, the Canadian firm is selling on the US assets of AMS' defence business to Caci International for C$549 million (US$415 million), leaving a net acquisition cost of $586 million (US$443 million).

The deal, which represents a 26% premium to the 30-day trailing average price of AMS on the Nasdaq stock market, is expected to add 15% to 20% to CGI's fiscal 2004 earnings on a pro forma basis and $1 billion to CGI's contracts backlog.

The aggregate purchase price of the acquisition and related transaction costs will be funded from CGI's cash on hand, C$331 million (US$250 million) in additional equity raised through a private placing - including C$66 million (US$50 million) from 29% stakeholder BCE, and existing credit facilities. The transaction is expected to close in May.

The two companies will merge their operations and brand the combined IT services in the US market as CGI-AMS. The combined operation will have 25,000 employees and annual revenue of US$3 billion.

Serge Godin, CGI's chairman and CEO, comments: "By joining forces with AMS, we will now become a billion-dollar player in the US and, given our complementary solutions and services offering, we will be better positioned to help our customers maximise the value of their information technology."

AMS currently derives 40% of its revenue from US government agencies as well as providing services to seven of the 10 largest banks in the world, eight of the 10 largest telecommunications firms in the world, and 150 US healthcare organisations.