An outsourcing company that is in the midst of a bidding war has accepted a takeover offer that is less than a rival suitor might pay.
Xchanging has agreed to sell itself for £412 million to Capita, despite remaining in talks with Apollo Global Management, a US private equity firm.
Xchanging, which specialises in processing technology for the insurance industry, said that it had decided to recommend the 160p-a-share cash offer from Capita to ensure that it would secure a takeover, irrespective of whether parallel negotiations at 170p a share with Apollo yielded an offer. Xchanging revealed ten days ago that it was the target of two predators, which sent its shares up by 50 per cent.
Geoff Unwin, its chairman, has had to recuse himself from negotiations with the two bidders. The unusual situation is the result of a share-matching scheme that is due to pay out more than £400,000 of stock to Mr Unwin in December as a result of an agreement when he joined the company. This means that Xchanging has been holding talks with its suitors without the guidance of the chairman, who is a veteran of the IT sector after stints with Hoskyns and Capgemini.
Xchanging shares added 1p to close at 165p after the Capita deal was recommended, which suggests that the market believes a counteroffer may emerge but is not confident.
Advertisement
Martin Bolland, the chairman of Capita, said: “The proposed acquisition of Xchanging is consistent with our stated strategy and will position Capita as a leading provider of technology-enabled business process services in the international insurance industry. We are excited by Xchanging’s prospects and will build its skills and capabilities to provide a platform for enhanced organic growth for Xchanging.”
Capita’s management stressed that it would “remain disciplined” regarding the bid. Kean Marden, an analyst at Jefferies, the investment bank, said the remark suggested that the bid was unlikely to be raised. The offer, the largest in Capita’s history, is described as “final” but Capita has reserved the right to raise the bid should Apollo or any other suitor lodge a successful offer.
Capita courted Xchanging in 2011, when it made an offer that was rebuffed. The deal will boost its stronghold in the insurance market and raise its international revenue. It expects the takeover to generate at least £35 million of cost savings, although analysts hoped that it could be £50 million.
Xchanging was floated with a value of £500 million in 2006 sponsored the Boat Race for three years until 2012.
The Capita offer represents a 44 per cent premium to the Xchanging price before the company’s confirmation that it had received offers.