(Reuters) — Insurance-focused outsourcing company Xchanging Plc said it had received competing takeover offers from larger rival Capita Plc and U.S.-based private equity investor Apollo Global Management LLC.
Apollo’s 170 pence per share all-cash offer values the British company at about 421 million pounds ($645 million), based on its shares outstanding as at Sept. 24, and is higher than Capita’s fourth proposal of 160 pence per share.
Shares in Xchanging – which offers services ranging from back-office invoice processing to insurance claims settlement – surged about 55 percent to 171.25 pence, indicating that some investors expected a higher bid.
The news of takeover interest comes months after Xchanging said its procurement unit performed poorly in the first half and that its chief executive would leave.
Capita, which runs services including the UK Ministry of Defense’s pension scheme, said separately that Xchanging was willing to recommend its final offer.
Shore Capital analyst Robin Speakman said bidders were seeing value in Xchanging’s strong insurance business and its Xuber software, which caters to the Lloyd’s of London insurance market.
A third player, perhaps a peer in global financial services support, could join the fray, Speakman added.
Xchanging said in a statement dated Oct. 4 that it had granted both firms due diligence access.
Capita’s final offer, made on Sept. 24, is 20 pence higher than its first one and represents a 45 percent premium to Xchanging’s Friday close. The FTSE-100 company made its first proposal on Aug. 11.
Capita, which has a market value of over 8 billion pounds and has struck 12 small deals this year, said any deal with Xchanging would add to earnings immediately.
However, the company’s plans to fund a big portion of the deal through a placing of new shares may upset investors, who have in the past expressed concerns about its M&A spree diluting returns.
“Due to Capita’s recent emphasis on driving return on capital, we believe the announcement of this larger acquisition is surprising,” UBS analysts wrote in a client note.
Apollo was not immediately available for comment outside of regular business hours in the United States.
Apollo and Capita have until November 2 to make a firm offer for Xchanging as per UK takeover rules.