Computer companies CMG and Logica have agreed to merge, creating Europe's second largest technology services company.

The deal comes a month after the two companies confirmed that they were in talks.

As a result of the deal, the companies will cut more than 1,400 jobs, about 6% of the merged company's workforce.

Together we will be a more powerful force

Cor Stutterheim, CMG

Last month UK-based Logica and Anglo-Dutch CMG hinted job cuts would follow any deal, after saying a merger would create substantial cost savings.

The new company will become a global player in wireless messaging and payments software, turning over about �2bn ($3.1bn; 3.12bn euros) a year.

Together the companies employ some 24,000 people, with operations in 34 countries.

Logica shares closed 4.75p lower at 166.25p in London on Tuesday.

CMG shares ended 1.5p higher at 78.5p.

A 'unanimous' deal

The two companies "unanimously" agreed the terms of a merger to create LogicaCMG.

Under the deal, Logica will take control of CMG, owning 60% of the merged group, while CMG will hold the remaining 40%.

Logica will own 60% of the new company

The companies estimate that the deal, which is expected to be completed before the end of the year, will save about �60m a year in costs.

Meanwhile merger-related costs will reach about �80m, the companies said.

"They are saying it's substantially cost saving and earnings enhancing," said one dealer.

"But a lot of that we knew, so it's in the price already."

Logica's effective takeover values CMG shares at about 82.5p each.

'A more powerful force'

In their statement, the companies said the board of LogicaCMG would have a balanced mix of executives from both companies.

CMG's executive chairman Cor Stutterheim will become non-executive chairman of the new company, while Logica's chief executive Martin Read will expand his brief to look after the whole of the new group.

"Together we will be a more powerful force, capable of delivering significant additional value for the benefit of shareholders, customers and employees," Mr Stutterheim said.

"The new company will combine Logica's leadership in project management and strategic focus... with CMG's exceptional customer management skills," added Mr Read.

Both companies provide the platforms and software for text messages on mobile phones.

Tech troubles

The proposed deal follows a tough year for both groups, which were once FTSE blue chips.

Both have seen their fortunes take a turn for the worse in the fall-out from the technology slump.

Despite their success in the 1990s, neither group has won significant contracts for next-generation, multimedia services.

In September, Logica reported a 25% slump in profits and predicted tougher times ahead.

This followed an update from CMG, which had described the previous six months as "some of the most difficult trading conditions" in the 38 years it had been operating.

LogicaCMG will continue to be listed on the London Stock Exchange and will apply for a secondary listing on Euronext Amsterdam.

Shareholders in Logica will still receive a final dividend of 3.1p, expected to be paid later this week, while CMG shareholders will be paid an interim dividend of 1.1p on 15 November.