REG - Capita PLC Xchanging PLC - Recommended Final Cash Offer for Xchanging plc <Origin Href="QuoteRef">CPI.L</Origin> <Origin Href="QuoteRef">XCH.L</Origin> - Part 2

CapitaAnnouncement

14/10/2015 07:01

- Part 2: For the preceding part double click  ID:nRSN1950Ca 

contract wins and frameworks in the science and health sectors.
The bid pipeline currently stands at £5.4bn (February 2015: £5.1bn), comprised
of 30 bids with a weighted average contract length of 8 years, including 97%
new business and 3% renewals and extensions. 
 
We continued to make acquisitions in the first half of 2015 to build
capability in existing markets, enter new markets and enhance our future
organic growth potential. We invested a total of £279m, excluding deferred and
contingent considerations, in acquiring 11 businesses in the period, including
avocis, which provides a key platform for Capita Europe, and Vertex Mortgage
Services, the completion of which is subject to approval by the Financial
Conduct Authority. 
 
Financial update 
 
Revenue - the Group increased underlying revenue1 by 10% to £2,283m1 (H1
20142: £2,071m), comprising 3% organic growth3, net of attrition, and 7% from
acquisitions. Organic growth was driven by the full benefit from last year's
contract gains, such as the Defence Infrastructure Organisation (DIO) and
Transport for London Congestion Charging, and good underlying performances
from our Asset Services and Workplace Services divisions. As expected, revenue
declined in the Insurance & Benefits Services division as a result of planned
contract step downs which will end this year. 
 
Operating profit - underlying operating profit1 increased by 11% to £288.8m1
(H1 20142: £260.2m). There were strong performances from Asset Services and
Digital & Software Solutions divisions, the latter supported by acquisitions,
and we were also pleased with the initial contribution from Capita Europe.
Workplace Services, Customer Management, Local Government, Health & Property
and IT Enterprise Services divisions all delivered good growth. Profits
declined in the Insurance & Benefits Services division, as a result of the
contract step downs, and the Integrated Services division, due to the residual
impact of the Disclosure and Barring Service contract, which ended in March
2014. 
 
Operating margin - underlying operating margin1 was 12.7% (H1 20142: 12.6%).
We are confident that underlying Group operating margins will continue to be
maintained in the range of 12.5% to 13.5% for the foreseeable future. 
 
Profit before tax - underlying profit before tax1 increased by 11% to £264.9m
(H1 20142: £238.0m). The underlying net interest charge4 was £24m (H1 2014:
£22m). 
 
Earnings per share - underlying earnings per share1 rose by 11% to 32.0p (H1
20142: 28.9p), after non-controlling interests of £4m (H1 2014: £4m). Our
underlying tax rate was 18.5% (H1 2014: 18.5%). 
 
Dividend - the Board has declared an interim dividend of 10.5p per ordinary
share (H1 2014: 9.6p), representing an increase of 9%. The interim dividend
will be payable on 30 November 2015 to shareholders on the register at the
close of business on 23 October 2015. 
 
Cash flow - cash generated by underlying operations1 was £300m (H1 20142: £
291m), representing an underlying operating profit1 to cash conversion ratio
of 104% (H1 20142: 112%). We continue to target a strong medium to long term
annual cash conversion ratio at or around 100%. Underlying free cash flow1 was
up 6% to £180m (H1 20142: £170m), supported by tight control of our capital
expenditure which was 2.5% of revenue in the first half. There are currently
no indications of significant capex increases in our business forecasts or bid
pipeline. 
 
Return on capital employed - our post-tax return on average capital employed1
(ROCE) was 14.5% (FY 20142: 14.8%), based upon the 12 month rolling position
from our last reporting date to 30 June. There was a 37bps drag from the end
of the Disclosure & Barring contract, the last of the planned contract step
downs in the Insurance & Benefits division and exited activities. Our ROCE
compares favourably to our estimated post-tax weighted average cost of capital
(WACC) of 7.2%. 
 
Debt profile - As at 30 June 2015, net debt was £1,685m (H1 2014: £1,424m).
Following issuance of $293.5m and £97m private placement notes in H1 2015, we
have a total of £1,401m outstanding private placement bond debt, of which £97m
matures in September 2015, £141m in 2016 and the remainder at various
maturities to 2027. In addition, we have £300m of long term bank loans, of
which £200m is repayable in January 2017 and the remainder in 2019, and a
£600m revolving credit facility maturing in August 2020, which was unutilised
and fully available at 30 June 2015. 
 
At 30 June 2015, our annualised net debt to EBITDA1 ratio was 2.4 (H1 20142:
2.3) with annualised interest cover1 at 14 times (H1 2014: 13 times). We
expect to keep the ratio of net debt to EBITDA in the range of 2 to 2.5 over
the long term and we would be unlikely to incur borrowings which would reduce
underlying interest cover below 7 times. 
 
Future prospects 
 
Our good operational, sales and financial performance in the first half
positions us well and we continue to expect to deliver low double digit
revenue growth in 2015, with a slight increase in organic growth in the second
half of the year, following the delayed start of some new contracts. We expect
organic growth to accelerate in 2016, supported by the conversion of our bid
pipeline. 
 
Capita operates in a large addressable market with scope to increase
penetration due to our own competitive advantages and a number of structural
factors such as fiscal pressure, digitisation, regulation and changing
demographics. With good growth in our existing markets, an increasing
footprint in health and new platforms in science and Northern Europe, we are
well placed to deliver a combination of sustainable growth, high levels of
cash flow and strong return on capital over the medium term. 
 
1          Excludes non-underlying items being: intangible amortisation,
acquisition expenses, net contingent consideration movements, specific
non-recurring items, non-cash impact of mark-to-market finance costs and
businesses exited. 
 
2          H1 2014 includes Occupational Health disposed in H2 2014. 
 
3          Excludes the Occupational Health disposal in 2014 and the organic
growth within the non-core health businesses exited in 2015. 
 
4          Before the impact of the movement in valuation of mark-to-market
financial instruments." 
 
As reported for the six months to 30 June 2015, the majority of Capita's
businesses continue to perform well and in line with expectations and the
Capita Directors are pleased with the progress of Capita Europe. The Capita
Directors continue to expect to deliver low double-digit revenue growth in
2015, supported by the start of new contracts in the second half. 
 
Xchanging plc 
 
On 30 July 2015, Xchanging announced its interim results for the six month
period ended 30 June 2015, an extract of which is set out below: 
 
"OVERVIEW 
 
During the first half of the year our Business Process Services ('BPS') and
Technology businesses (93.5% of 1H net revenue) performed well, in line with
or ahead of our expectations. Our Procurement business (6.5% of 1H net
revenue) however has delivered a very poor and disappointing performance
which, combined with currency factors in our BPS business, has impacted our
overall result for the half year. 
 
Sector Review 
 
BPS
(67.2% of 1H net revenue) 
 
Business Process Services has performed well. The transition out of legacy and
lower margin business in our Broking and Claims businesses, a process that is
now almost complete, reduced net revenue by £9.1 million. The weakening of the
Euro and Australian dollar adversely impacted net revenue by £4.6 million.
Despite these challenges, net revenue for this business amounted to £134.0
million (HY 2014: £142.1 million). Adjusted operating profit was £28.4 million
(HY 2014: £26.1 million), representing an adjusted operating profit margin of
21.2% (HY 2014: 18.4%) largely reflecting the benefit of cost reduction
initiatives taken last year. 
 
BPS has continued to pursue the technology-enabled processing strategy and we
are seeing encouraging signs from recent new offerings. Robotic Process
Automation has been embedded in our operations and is now being taken to our
customers as part of our enhanced service offering. 
 
We have now combined our original Binder 360 offering with BinderCloud from
the Total Objects acquisition at the end of 2014. The new offering,
BinderCloud 360, sits at the heart of our new menu of Delegated Underwriting
Services. Launched in 2014, the service has been well received in the market,
winning a number of initial broker and carrier customers. 
 
In Australia, the broker technology platform X-alt, in which we have a 90%
interest, launched in April 2015. It is building a strong pipeline of new
business, winning 6 new contracts in the first half of this year. 
 
Following a successful Netsett pilot in an in-house corporate setting, the
current pilot with members of the Ruschlikon group of broker and insurance
companies is going well. Netsett, with the continued support of our partner
Deutsche Bank, is gaining traction and is anticipated to generate its first
revenues, albeit small, in the second half of the year. 
 
We are working closely with Lloyd's of London to provide support for their
Central Services Refresh Programme to achieve market modernisation. Within
this, our current programme of new technology introductions, due to continue
into 2016, is being well received. Our investment in the current year in
developing this technology is key to ensuring that we remain at the centre of
the London market. 
 
The exit from the WorkCover workers' compensation contract with the State of
New South Wales in Australia is now substantially complete. 
 
In Financial Services, our investment in technology and restructuring is well
advanced. The benefits are starting to show, although the reported numbers are
being adversely impacted by the translation impact of the weak Euro against
Sterling. 
 
Technology
(26.3% of 1H net revenue) 
 
Technology has also performed well, despite the comparative effect of the exit
from the London Metal Exchange ('LME') contract in May 2014, and the impact on
adjusted operating profit of a higher amortisation charge of £5.1 million (HY
2014: £3.7 million). Net revenue was £52.4 million (HY 2014: £47.1 million).
Adjusted operating profit was £4.1 million (HY 2014: £2.7 million),
representing an adjusted operating profit margin of 7.8% (HY 2014: 5.7%). 
 
The acquisition of the European insurance software businesses from Agencyport
Software, announced on 4 July 2014, was finally cleared by the Competition and
Markets Authority on 29 April 2015. The process not only delayed our ability
to integrate the business, but also put a material burden on management
resource as well as incurring costs. 
 
However, this business meantime continued to perform in line with our
expectations and the acquisition business plan, on a standalone basis.
Following clearance, we are now integrating the acquisition into our Xuber
insurance software business, so we can enjoy the full synergy, product
offering and new market opportunity benefits envisaged at the time of the
acquisition. In the second half we expect to start to realise the benefit of
integration savings, which are anticipated to reach significant levels in
2016. 
 
Similarly, the Total Objects acquisition, completed in December 2014, is
contributing well in its first full half year and has been successfully
building its customer base. 
 
Our Xuber insurance software business continues to strengthen its profile in
the market. Some key contracts were won in the first half, including with
Ariel Re, with certain more material contracts in the pipeline progressing
towards closure during the second half. A number of implementations including
Everest Re are at an advanced stage of completion. 
 
We remain confident about the potential of the Insurance Software business and
the strength of the pipeline, although the length of the sales cycle,
particularly for large policy administration replacement projects, means the
timing of contract wins is not easy to predict. 
 
In our Application Services business, the strong growth momentum continues
with good flows of new business across the entire sector, and important new
signings made in our Education business and in the Asian marketplace. We have
won a significant number of new clients and substantially increased our
portfolio of work with our existing customers. 
 
Given the materiality of contracts in the Xuber pipeline, some of which are
based on initial licence revenues in-year, the timing of wins will be an
important factor in Xchanging's financial performance for the year as a
whole. 
 
Procurement
(6.5% of 1H net revenue) 
 
As foreshadowed in our First Quarter 2015 Update published in April,
Procurement has had a difficult first half year. A weak performance in the
traditional outsourcing business has combined with underperformance in one of
the new Tail-end Spend Management contracts, overshadowing the HY on HY
revenue growth of the acquired technology businesses to deliver an overall
unsatisfactory result. Net revenue was £13.0 million (HY 2014: £15.9 million),
and the adjusted operating loss was £6.8 million (HY 2014: £1.7 million loss).
This was after allocating central overheads of £1.8 million (HY 2014: £1.9
million). This has resulted in an impairment of the Procurement sector
goodwill of £47.0 million and an onerous contract and related assets
exceptional charge of £4.1 million. In the 2H we expect a further exceptional
charge for restructuring of c.£3 million. 
 
Our Procurement business is comprised of three principal operations: our
technology platform offerings comprising the MM4 and Spikes Cavell (acquired
in February 2015) spend analytics businesses; our traditional outsourcing
contracts; and our Tail-end Spend Management contracts. 
 
Technology platform offerings: revenues from our technology platform
offerings, Software-as-a-Service ('SaaS') and Procurement-as-a-Service
('PaaS') based on the MM4 technology, continue to grow from a small base.
Spikes Cavell, acquired in February 2015 to build out the range of offerings,
is performing to plan and has secured some key contract renewals. The
technology business has grown revenues with net additions to the customer
base, mainly in the attractive US market. 
 
Traditional outsourcing: in our First Quarter 2015 Update we noted that the
performance of the Procurement business overall was being adversely impacted
by our traditional outsourcing business where cost base reduction has been
lagging the rate of loss of traditional revenues, impacted by contract exits
and contract renegotiations. These circumstances have persisted throughout the
first half. 
 
Tail-end Spend Management: in the First Quarter 2015 Update we also noted that
the first half of 2015 would bear the costs of the implementation process for
the new, Tail-end Spend Management business won in the second half of 2014,
with benefits expected to start showing in the second half of the year. Whilst
the costs of implementation have been borne in the first half as expected, the
associated stream of new revenue has been slow to gain momentum and is
significantly lagging our expectations. The future of this contract is now
under active review and it has been accounted for as an onerous contract in
our half year accounts. 
 
The combined effect of the traditional outsourcing and Tail-end Spend
Management businesses has significantly impacted the Procurement business
result overall. 
 
In our First Quarter 2015 Update we commented that a recovery plan was
underway to address the challenges facing the Procurement business, and in the
first half, significant work has been undertaken to manage the cost base.
However, despite revenue growth in the, as yet small, technology platform
business, anticipated new contracts in the second quarter did not materialise,
resulting in a deterioration of the financial year forecast for Procurement
overall. 
 
We have undertaken a review of options for how best to manage this business
profitably. Our decision is to align the principal parts with other segments
of the Group. This is designed to facilitate the potential for a material
reduction in the cost base of the business across the second half of the year
and to enable us to manage the business profitably.  As firm proposals for
cost reductions are formulated they will be subject to local legislation on
employee consultation in all potentially affected countries. 
 
The technology platform-based SaaS/PaaS business will be included within our
Technology business and come under that sector's leadership. We will continue
to go to market actively and support these offerings, as part of our expanding
technology range. 
 
Our outsourcing contracts, being in the nature of business process outsourcing
business, will now be operated and delivered by our BPS business, and come
under that sector's leadership. We anticipate being able to utilise our
existing BPS infrastructure to achieve significant cost reductions during the
second half of 2015.  The procurement outsourcing business will continue with
the existing customers and will be an offering as an upsell to the technology
customer relationships.  The capability to deliver the contracts will be
retained within BPS and we will also further examine options for improving the
efficiency of this business through the greater use of robotics and
offshoring. 
 
One of the Tail-end Spend Management contracts won in 2014 has proved
disappointing, incurring unacceptable losses to date. We are actively
reviewing the contract with the customer to establish a resolution.  In the
meantime, the contract will be managed and delivered by BPS, alongside the
traditional outsourcing contracts. 
 
To help plan to achieve maximum benefit from the strategic realignment in the
second half of the year, we have enlisted external support. We will continue
to report financial information for the Procurement businesses in the near
term but ultimately the technology and business processing components of
Procurement will be reported within Technology and BPS. 
 
OUTLOOK 
 
There is no doubt that the significant part of Xchanging's business is
benefitting from the actions and investments of recent years and growing
robustly in attractive markets. The significant and unwelcome underperformance
of Procurement, which accounts for a small part of our overall business,
should not obscure the strong growth and future potential of the Group, nor
the fact of the significant transformation the Company has undergone over the
last four years. Xchanging now has a leading insurance software business and
an enviable position in the insurance market; a stable capital markets
business; and a growing Applications Services business. 
 
As described above, our BPS and Technology businesses have performed strongly
in the first half of the year and the outlook is for this robust performance
to continue in the second half of the year, although this is dependent on the
timing of material Xuber contracts, and currency effects. In Procurement, we
have a clear strategic objective to address the profitability issues, in the
second half of the year. Our success in achieving this will also affect our
full year financial performance. 
 
Our efforts in the second half will be focussed on converting our established
and growing pipeline. It will also be focused on achieving a satisfactory
result from the reorganisation of the way in which we manage and operate our
procurement business within BPS and Technology by aligning our outsourcing
contracts with our BPS business and using our Technology business to
accelerate our procurement technology offerings. The outlook for the full year
is for a trading performance in line with last year and a return to growth in
the full year 2016." 
 
Since 30 June 2015, Xchanging has continued to trade materially in line with
expectations. 
 
10.         Financing of the Offer 
 
Full acceptance of the Offer will result in the payment by Capita of
approximately £412 million in cash to Xchanging Shareholders (and participants
in the Xchanging Share Schemes). The cash consideration payable to Xchanging
Shareholders will be satisfied through debt and/or the proceeds of the Capita
Share Issue (if effected). The Offer is not conditional on the Capita Share
Issue. 
 
Capita and certain of its affiliates have entered into a sterling unsecured
bridging term loan facility agreement with Citibank, N.A., London Branch and
Deutsche Bank Luxembourg S.A. (as lenders) and Citibank International Limited
acting as agent dated 13 October 2015 (the "Bridge Facility Agreement") under
which a £450 million credit facility is available to Capita to finance the
cash consideration payable pursuant to the Offer. Capita intends to effect the
Capita Share Issue, in which case the proceeds will be utilised to refinance
the credit facility made available under the Bridge Facility Agreement to the
extent drawn at that time. Further details of the Bridge Facility Agreement
and financing arrangements will be included in the Offer Document. 
 
Citi, as financial adviser to Capita, is satisfied that sufficient cash
resources are available to Capita to satisfy the cash consideration payable to
Xchanging Shareholders (and participants in the Xchanging Share Schemes) in
the event of full acceptance of the Offer. 
 
11.         Structure of the Offer 
 
11.1       Terms and conditions 
 
The Offer is conditional upon, amongst other things: (i) valid acceptances
being received in respect of Xchanging Shares which, together with any
Xchanging Shares acquired by Capita (whether pursuant to the Offer or
otherwise) constitute not less than 90 per cent. in nominal value of the
Xchanging Shares to which the Offer relates and represent not less than 90 per
cent. of the voting rights attached to such Xchanging Shares; (ii) the FCA
having notified Capita and/or Xchanging of its approval of the change of
control of any UK authorised persons within the Xchanging Group as a result of
the Acquisition (or the requisite waiting period for such approval to be
provided having elapsed without the FCA having objected to the Acquisition);
(iii) BaFin having notified Capita and/or Xchanging that it has no objections
to the proposed acquisition of a substantial holding in a German institution
supervised under the KWG in the Wider Xchanging Group by Capita (or the
requisite waiting period for such approval to be provided having elapsed
without the BaFin having objected to the proposed acquisition of such
substantial holding);(iv) in so far as the Offer is required to be notified
under the US merger control regime, all necessary notifications and filings
having been made and all applicable waiting periods (including any extensions
thereof) under the United States Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (as amended) having expired, lapsed or been terminated without a
request for additional information having been made by the FTC or the
Antitrust Division of the Department of Justice; and (v) in so far as the
Offer is required to be notified under the German merger control regime, the
German Bundeskartellamt deciding that the prohibition criteria in German Act
against Restraints of Competition are not satisfied, or being deemed to have
made such a decision. Appendix 1 to this announcement sets out the Conditions
and further terms to which the Offer will be subject, including details of
requisite regulatory and merger control approvals. The Offer does not require
the approval of Capita shareholders. 
 
The Offer can only become effective if all Conditions to the Offer have been
satisfied or, where applicable, waived. Subject to the satisfaction or, where
applicable, waiver of the Conditions, it is expected that completion of the
Acquisition will occur at or around the end of 2015/early 2016 following the
receipt of relevant merger control clearances and regulatory approvals. 
 
11.2       Takeover offer 
 
It is intended that the Offer be implemented by means of a takeover offer
under the Code.  Capita reserves the right, subject to the consent of the
Panel, to effect the Offer by way of a Court-sanctioned scheme of arrangement
under Part 26 of the UK Companies Act. 
 
11.3       Publication of Offer Document 
 
It is expected that the Offer Document will be posted to Xchanging
Shareholders as soon as reasonably practicable and, in any event, by 11
November 2015. 
 
11.4       Compulsory acquisition, de-listing and cancellation of trading 
 
If the Offer becomes, or is declared, wholly unconditional and Capita receives
acceptances under the Offer in respect of, and/or otherwise acquires, not less
than 90 per cent. of the Xchanging Shares by nominal value and voting rights
attaching to such shares to which the Offer relates, Capita intends to apply
the provisions of sections 974 to 991 (inclusive) of the Companies Act 2006 to
acquire compulsorily any outstanding Xchanging Shares to which the Offer
relates not acquired, or agreed to be acquired, pursuant to the Offer or
otherwise. 
 
After the Offer becomes, or is declared, unconditional in all respects and if
Capita has: (i) by virtue of its shareholdings and acceptances of the Offer
acquired, or agreed to acquire, Xchanging Shares representing at least 75 per
cent. of the voting rights of Xchanging; and (ii) Capita has obtained
acceptances of the Offer or acquired, or agreed to acquire, Xchanging Shares
from Xchanging Shareholders that represent a majority of the voting rights
held by the Xchanging Shareholders on the date of this announcement (the
"Delisting Threshold"), Capita intends to procure the making of an application
by Xchanging for cancellation, respectively, of the trading in Xchanging
Shares on the London Stock Exchange's main market for listed securities and of
the listing of Xchanging Shares on the premium listing segment of the Official
List.  A notice period of not less than 20 Business Days before the
cancellation will commence on the date on which the Offer becomes, or is
declared, unconditional in all respects provided that Capita has attained the
Delisting Threshold.  Delisting would significantly reduce the liquidity and
marketability of any Xchanging Shares not assented to the Offer. 
 
It is also proposed that Xchanging will be re-registered as a private company
in due course. 
 
12.         Disclosure of interests in Xchanging Shares 
 
As at the close of business on 13 October 2015, being the latest practicable
date before this announcement, Capita did not hold any Xchanging Shares. 
 
13.         Offer-related arrangements 
 
Confidentiality agreement 
 
Capita and Xchanging entered into a confidentiality agreement on 23 September
2015 (the "Confidentiality Agreement") pursuant to which Capita has undertaken
to keep certain information relating to: (i) the Acquisition; and (ii) the
Xchanging Group and its businesses, customers or financial affairs
confidential and not to disclose such information to third parties, except (a)
to its directors, senior employees, advisers and, in certain circumstances,
certain other permitted recipients (such as providers or potential providers
of debt or equity finance) for the purposes of evaluating the Acquisition and
the Offer or (b) if required to do so by law or regulation or by any
regulatory or governmental authority to which it is subject. 
 
Pursuant to the Confidentiality Agreement, Capita undertook, for a period of
12 months from the date of the Confidentiality Agreement, not to have any
contact in relation to the Acquisition with any of Xchanging's shareholders
(save for specified institutional shareholders), directors, employees,
customers, contractors or sub-contractors without Xchanging's prior written
consent and not to solicit, engage or employ or offer to employ any director,
officer or senior employee of Xchanging, save in certain circumstances. 
 
Capita further agreed to a standstill in relation to the securities of
Xchanging for a period of 12 months from the date of the Confidentiality
Agreement that applies other than, inter alia, in connection with the
announcement of a recommended offer. 
 
Save as referred to above, the obligations pursuant to the Confidentiality
Agreement will remain in force until completion of the Offer or, if the Offer
fails to complete, for a period of two years from the date of the
Confidentiality Agreement. 
 
Co-operation agreement 
 
Capita and Xchanging entered into a co-operation agreement on 14 October 2015
(the "Co-operation Agreement") pursuant to which, among other things: (i)
Capita and Xchanging have agreed to co-operate with each other, and provide
each other with such reasonable information and assistance, for the purposes
of obtaining the CMA Merger Clearance, any other Clearances required and
satisfying the Merger Control Conditions and Regulatory Conditions; and (ii)
without prejudice to its rights in connection with any other condition to the
Offer, Capita has agreed to seek the Panel's consent to an extension of the
Code timetable at the relevant time in the event that it becomes apparent that
any of the Merger Control Conditions or Regulatory Conditions are likely not
to be satisfied within the normal Code timetable. 
 
Reverse break fee agreement 
 
Capita and Xchanging entered into a reverse break fee agreement on 14 October
2015 (the "Reverse Break Fee Agreement") pursuant to which, among other
things, by way of compensation for any loss suffered by Xchanging in
connection with the preparation and negotiation of the Offer, Capita has
agreed to pay a break fee (the "Break Fee") to Xchanging in the amount of £4
million where: 
 
(a)        on or before 28 February 2016, any Merger Control Condition or
Regulatory Condition to the Offer shall not have been satisfied or waived by
Capita and either: (i) the Panel has not consented to an extension of the
Offer pursuant to Rule 31.6 or Rule 31.7 of the Code, as applicable, and the
Offer has lapsed as a result; or (ii) Capita invokes such Merger Control
Condition or Regulatory Condition in order to lapse the Offer; or 
 
(b)        the Offer becomes subject to a CMA Phase 2 Reference prior to the
Offer becoming, or being declared, unconditional as to acceptances, 
 
(each a "Break Fee Event"). 
 
However, the Break Fee will not be payable in circumstances where: 
 
(a)       a Break Fee Event is caused by Xchanging materially breaching
certain of its obligations under the Co-operation Agreement; 
 
(b)       Xchanging has provided Capita with materially incorrect or
misleading information on which it has based (i) any submission, notification
or communication with any relevant Regulatory Authority or (ii) any decision
that no such submission, notification or communication is required and which,
in both cases has caused the relevant Merger Control Condition or Regulatory
Condition not to be satisfied or a CMA Phase 2 Reference to be made; or 
 
(c)        Apollo or another third party announces a firm intention to make an
offer for Xchanging (a "Competing Offer") and such Competing Offer is
successful, notwithstanding that the Offer may have lapsed or been withdrawn. 
 
14.         Xchanging Share Schemes 
 
The Offer extends to any Xchanging Shares which are unconditionally allotted
or issued fully paid (or credited as fully paid) while the Offer remains open
for acceptance, including any such shares unconditionally allotted or issued
pursuant to the exercise of options and/or awards under the Xchanging Share
Schemes. Appropriate proposals will be made to participants in the Xchanging
Share Schemes and such persons will be sent separate letters in due course
explaining the effect of the Offer on their options/awards and setting out the
proposals being made in respect of their outstanding options/awards in
connection with the Offer. 
 
15.         Documents available on websites 
 
Copies of the following documents will published by no later than 12 noon
(London time) on the Business Day following the date of this announcement on
Capita's website at
http://investors.capita.co.uk/capita-offer-for-xchanging-plc.aspx and on
Xchanging's website at www.xchanging.com and will be made available until the
end of the Offer Period: 
 
·      a copy of this announcement; 
 
·      the Confidentiality Agreement; 
 
·      the Reverse Break Fee Agreement; 
 
·      the Co-operation Agreement; and 
 
·      the Bridge Facility Agreement. 
 
16.         General 
 
This announcement does not constitute an offer or an invitation to purchase or
subscribe for any securities. 
 
Your attention is drawn to the further information contained in the Appendices
which form part of, and should be read in conjunction with, this
announcement. 
 
The Offer will be subject to the Conditions and further terms set out in
Appendix 1 to this announcement and to the full terms and conditions which
will be set out in the Offer Document.  Appendix 2 contains the bases and
sources of certain information used in this summary and this announcement. 
Appendix 3 contains definitions of certain terms used in this announcement. 
 
Enquiries: 
 
 Capita                                                                                                         +44 (0) 20 7799 1525    
 Shona Nichols, Executive Director, Corporate Communications DirectorAndrew Ripper, Head of Investor Relations                          
 Citigroup Global Markets Limited (Financial Adviser and Joint Corporate Broker to Capita)                      +44 (0) 207 986 4000    
 David WormsleyCharles LytleEdward McBride                                                                                              
 Deutsche Bank (Joint Corporate Broker to Capita)                                                               +44 (0) 20 7545 8000    
 Charles Wilkinson                                                                                                                      
 FTI Consulting (PR adviser to Capita)                                                                          +44 (0) 20 3727 1340 /  
                                                                                                                +44 (0) 7775 641 807    
 Andrew LorenzNick Hasell                                                                                       
 Xchanging                                                                                                      +44 (0) 20 7187 2000    
 Geoff Unwin, ChairmanKen Lever, Chief Executive                                                                                        
 Lazard (Financial Adviser to Xchanging)                                                                        +44 (0) 20 7187 2000    
 William RuckerCyrus KapadiaOlivier Christnacht                                                                                         
 Investec (Joint Corporate Broker to Xchanging)                                                                 +44 (0) 20 7597 4000    
 Christopher BairdJames Rudd                                                                                                            
 Liberum (Joint Corporate Broker to Xchanging)                                                                  +44 (0) 20 3100 2000    
 Peter TraceyNeil Patel                                                                                                                 
 Maitland (PR Adviser to Xchanging)                                                                             +44 (0) 20 7379 5151    
 Emma BurdettDan Yea                                                                                                                    
 
 
Important notices relating to financial advisers and corporate brokers 
 
Citigroup Global Markets Limited ("Citi"), which is authorised by the
Prudential Regulation Authority and regulated in the United Kingdom by the
Financial Conduct Authority and the Prudential Regulation Authority, is acting
exclusively for Capita and no one else in connection with the Offer and will
not be responsible to anyone other than Capita for providing the protections
afforded to clients of Citi nor for providing advice in relation to the Offer
or any other matters referred to in this announcement. Neither Citi nor any of
its affiliates owes or accepts any duty, liability or responsibility
whatsoever (whether direct or indirect, whether in contract, in tort, under
statute or otherwise) to any person who is not a client of Citi in connection
with this announcement, any statement contained herein, the Offer or
otherwise. 
 
Deutsche Bank AG is authorised under German Banking Law (competent authority:
European Central Bank) and, in the United Kingdom, by the Prudential
Regulation Authority. It is subject to supervision by the European Central
Bank and by BaFin, Germany's Federal Financial Supervisory Authority, and is
subject to limited regulation in the United Kingdom by the Prudential
Regulation Authority and Financial Conduct Authority. 
 
Deutsche Bank AG is a joint stock corporation with limited liability
incorporated in the Federal Republic of Germany, Local Court of Frankfurt am
Main, HRB No. 30 000; Branch Registration in England and Wales BR000005 and
Registered Address: Winchester House, 1 Great Winchester Street, London EC2N
2DB. Deutsche Bank AG, London Branch is a member of the London Stock Exchange.
(Details about the extent of our authorisation and regulation by the
Prudential Regulation Authority, and regulation by the Financial Conduct
Authority are available on request or from
www.db.com/en/content/eu_disclosures.htm.). 
 
Deutsche Bank AG, acting through its London branch ("Deutsche Bank"), is
acting as a corporate broker to Capita and no other person in connection with
the Offer, this announcement and its contents. Deutsche Bank will not be
responsible to any person other than Capita for providing any of the
protections afforded to clients of Deutsche Bank, nor for providing any advice
in relation to any matter referred to herein. Without limiting a person's
liability for fraud, neither Deutsche Bank nor any of its subsidiary
undertakings, branches or affiliates nor any of its or their respective
directors, officers, representatives, employees, advisers or agents owes or
accepts any duty, liability or responsibility whatsoever (whether direct or
indirect, whether in contract, in tort, under statute or otherwise) to any
person who is not a client of Deutsche Bank in connection with this
announcement, any statement contained herein or otherwise. 
 
Lazard & Co., Limited ("Lazard"), which is authorised and regulated in the
United Kingdom by the Financial Conduct Authority, is acting exclusively for
Xchanging and no one else in connection with the Offer and will not be
responsible to anyone other than Xchanging for providing the protections
afforded to clients of Lazard nor for providing advice in relation to the
Offer or any other matters referred to in this announcement. Neither Lazard
nor any of its affiliates owes or accepts any duty, liability or
responsibility whatsoever (whether direct or indirect, whether in contract, in
tort, under statute or otherwise) to any person who is not a client of Lazard
in connection with this announcement, any statement contained herein, the
Offer or otherwise. 
 
Investec Bank plc, which is authorised in the United Kingdom by the Prudential
Regulation Authority and regulated by the Financial Conduct Authority and the
Prudential Regulation Authority, is acting exclusively for Xchanging and
no-one else in connection with the Offer and will not be responsible to anyone
other than Xchanging for providing the protections afforded to its clients or
for providing advice in connection with the Offer or any other matters
referred to in this announcement. 
 
Liberum Capital Limited, which is authorised and regulated by the Financial
Conduct Authority in the United Kingdom, is acting exclusively for Xchanging
and for no one else in connection with the Offer and will not be responsible
to anyone other than Xchanging for providing the protections afforded to its
clients or for providing advice in connection with the Offer or any other
matters referred to in this announcement. 
 
Further information 
 
This announcement is not intended to, and does not, constitute or form part of
any offer, invitation or the solicitation of an offer to purchase, otherwise
acquire, subscribe for, sell or otherwise dispose of any securities, or the
solicitation of any vote or approval in any jurisdiction, pursuant to the
Offer or otherwise. The Offer will be made solely by means of the Offer
Document and the Form of Acceptance accompanying the Offer Document, which
will contain the full terms and conditions of the Offer, including details of
how the Offer may be accepted. Any response to the Offer should be made only
on the basis of information contained in the Offer Document. Xchanging
Shareholders are advised to read the formal documentation in relation to the
Offer carefully once it has been despatched. 
 
This announcement has been prepared for the purposes of complying with English
law, the rules of the London Stock Exchange and the Code and the information
disclosed may not be the same as that which would have been disclosed if this
announcement had been prepared in accordance with the laws and regulations of
any jurisdiction outside the United Kingdom. 
 
Overseas jurisdictions 
 
The distribution of this announcement in jurisdictions other than the United
Kingdom and the ability of Xchanging Shareholders who are not resident in the
United Kingdom to participate in the Offer may be affected by the laws of
relevant jurisdictions. Therefore any persons who are subject to the laws of
any jurisdiction other than the United Kingdom or Xchanging Shareholders who
are not resident in the United Kingdom will need to inform themselves about,
and observe, any applicable legal or regulatory requirements. Any failure to
comply with the applicable restrictions may constitute a violation of the
securities laws of any such jurisdiction. Further details in relation to
overseas shareholders will be contained in the Offer Document. 
 
The Offer is not being, and will not be, made available, directly or
indirectly, in or into or by the use of the mails of, or by any other means or
instrumentality of interstate or foreign commerce of, or any facility of a
national state or other securities exchange of any Restricted Jurisdiction,
unless conducted pursuant to an exemption from the applicable securities laws
of such Restricted Jurisdiction. 
 
Accordingly, copies of this announcement and all documents relating to the
Offer are not being, and must not be, directly or indirectly, mailed,
transmitted or otherwise forwarded, distributed or sent in, into or from any
Restricted Jurisdiction except pursuant to an exemption from the applicable 
securities laws of such Restricted Jurisdiction and persons receiving this
announcement (including, without limitation, agents, nominees, custodians and
trustees) must not distribute, send or mail it in, into or from such
jurisdiction. Any person (including, without limitation, any agent, nominee,
custodian or trustee) who has a contractual or legal obligation, or may
otherwise intend, to forward this announcement and/or the Offer Document
and/or any other related document to a jurisdiction outside the United Kingdom
should inform themselves of, and observe, any applicable legal or regulatory
requirements of their jurisdiction. 
 
Notice to US holders of Xchanging Shares 
 
The Offer, if required to be made, will be made in the United States pursuant
to applicable exemptions under the US tender offer rules and securities laws
and otherwise in accordance with the requirements of the Code, the Panel and
the London Stock Exchange. Accordingly, the Offer will be subject to
disclosure and other procedural requirements, including with respect to
withdrawal rights, offer timetable, settlement procedures and timing of
payments that are different from those applicable under US domestic tender
offer procedures and law. 
 
The Offer is being made for the securities of an English company with a
listing on the London Stock Exchange. The Offer is subject to UK disclosure
requirements, which are different from certain United States disclosure
requirements. The financial information on both Capita and Xchanging included
in this announcement has been prepared in accordance with IFRS, thus neither
may be comparable to financial information of US companies or companies whose
financial statements are prepared in accordance with generally accepted
accounting principles in the United States. 
 
The receipt of cash pursuant to the Offer by a US holder of Xchanging Shares
may be a taxable transaction for US federal income tax purposes and under
applicable US state and local, as well as foreign and other, tax laws. Each
Xchanging Shareholder is urged to consult his independent professional adviser
immediately regarding the tax consequences of accepting the Offer.
Furthermore, the payment and settlement procedure with respect to the Offer
will comply with the relevant United Kingdom rules, which differ from the
United States payment and settlement procedures, particularly with regard to
the date of payment of consideration. 
 
The Offer will be made in the United States by Capita and no one else. 
 
It may be difficult for US holders of Xchanging Shares to enforce their rights
and any claim arising out of US federal securities laws, since Capita is
incorporated under the laws of England and Wales and Xchanging is incorporated
under the laws of England and Wales and some or all of their officers and
directors are residents of non-US jurisdictions. In addition, most of the
assets of Capita and Xchanging are located outside the United States. US
holders of Xchanging Shares may not be able to sue a non-US company or its
officers or directors in a non-US court for violations of US securities laws. 
 
Further, it may be difficult to compel a non-US company and its affiliates to
subject themselves to a US court's judgment. 
 
This announcement does not constitute an offer of securities for sale in the
United States or an offer to acquire or exchange securities in the United
States. No offer to acquire securities or to exchange securities for other
securities has been made, or will be made, directly or indirectly, in or into,
or by the use of the mails of, or by any means or instrumentality of
interstate or foreign commerce or any facilities of a national securities
exchange of, the United States or any other country in which such offer may
not be made other than: (i) in accordance with the tender offer requirements
under the US Securities Exchange Act of 1934 (as amended) (the "Exchange
Act"), or the securities laws of such other country, as the case may be, or:
(ii) pursuant to an available exemption from such requirements. Neither the US
Securities and Exchange Commission nor any US state securities commission has
approved or disapproved the Offer, passed upon the merits or fairness of the
Offer or passed comment upon the adequacy or completeness of this announcement
or the Offer Document. Any representation to the contrary is a criminal
offence in the United States. 
 
To the extent permitted by applicable law, in accordance with, and to the
extent permitted by, the Code and normal UK market practice and subject to
Rule 14e-5(b) under the Exchange Act, Capita or its nominees or brokers
(acting as agents) or their respective affiliates may from time to time make
certain purchases of, or arrangements to purchase, shares or other securities
in Xchanging, other than pursuant to the Offer, at any time prior to
completion of the Offer becoming effective. These purchases may occur either
in the open market at prevailing prices or in private transactions at
negotiated prices. Any such purchases, or arrangements to purchase, will
comply with all applicable UK rules, including the Code and the rules of the
London Stock Exchange, to the extent applicable. No purchases will be made
outside of the Offer in the United States by or on behalf of Capita. In
addition, in accordance with, and to the extent permitted by, the Code and
normal UK market practice, Citi and its affiliates will continue to act as
exempt principal traders in Xchanging Shares on the London Stock Exchange and
engage in certain other purchasing activities consistent with their respective
normal and usual practice and applicable law. To the extent required by the
applicable law (including the Code), any information about such purchases will
be disclosed on a next day basis to the Panel on Takeovers and Mergers and a
Regulatory Information Service including the Regulatory News Service on the
London Stock Exchange website, www.londonstockexchange.com. 
 
Forward-looking statements 
 
This announcement contains certain statements which are, or may be deemed to
be, "forward-looking statements". These statements are based on current
expectations and projections about future events and are naturally subject to
uncertainty and changes in circumstances. These forward-looking statements may
include statements about the expected effects on Capita and/or Xchanging of
the Offer, the expected timing and scope of the Offer, strategic options and
all other statements in this announcement other than historical or current
facts. Forward-looking statements often use words such as "anticipate",
"target", "expect", "estimate", "intend", "plan", "budget", "schedule",
"forecast", "project", "goal", "believe", "hope", "aims", "continue", "will",
"may", "should", "would", "could", "subject to", or other words of similar
meaning. By their nature, forward-looking statements involve known and unknown
risks and uncertainties, because they relate to events and depend on
circumstances that will occur in the future and the factors described in the
context of such forward-looking statements in this announcement could cause
actual results, outcomes and developments to differ materially from those
expressed in, or implied by, such forward-looking statements and such
statements are therefore qualified in their entirety by the risks and
uncertainties surrounding these future expectations. Many of these risks and
uncertainties relate to factors that are beyond the entities' ability to
control or estimate precisely. Important factors that could cause actual
results, performance or achievements of the Capita Group or the Xchanging
Group to differ materially from the expectations of the Capita Group or the
Xchanging Group, as applicable, include, among other things: UK domestic and
global economic and business conditions; instability in the global financial
markets, including Eurozone instability and the impact of any sovereign credit
rating downgrade or other sovereign financial issues; market-related risks
including in relation to interest rates and exchange rates; changing
demographics and market-related trends; changes in customer preferences;
changes to laws, regulation, accounting standards or taxation; the policies
and actions of governmental or regulatory authorities in the UK or the
European Union or other jurisdictions in which either the Capita Group or the
Xchanging Group operates; the ability to attract and retain senior management
and other employees; the extent of any future impairment charges or
write-downs caused by depressed asset valuations, market disruptions and
illiquid markets; the effects of competition and the actions of competitors;
exposure to regulatory scrutiny, legal proceedings, regulatory investigations
or complaints and other factors. Although it is believed that the expectations
reflected in such forward-looking statements are reasonable, no member of the
Capita Group or the Xchanging Group can give any assurance, representation or
guarantee that such expectations will prove to have been correct and such
forward-looking statements should be construed in light of such factors and
you are therefore cautioned not to place reliance on these forward-looking
statements which speak only as at the date of this announcement. Capita
assumes no obligation to update or correct the information contained in this
announcement (whether as a result of new information, future events or
otherwise), except as required by applicable law or regulations. 
 
No profit forecasts or estimates 
 
No statement in this announcement is intended as a profit forecast or estimate
for any period and no statement in this announcement should be interpreted to
mean that earnings or earnings per share for Capita or Xchanging, as
appropriate, for the current or future financial years would necessarily match
or exceed the historical published earnings or earnings per share for Capita
or Xchanging, as appropriate. 
 
Disclosure requirements of the Code 
 
Under Rule 8.3(a) of the Code, any person who is interested in 1 per cent. or
more of any class of relevant securities of an offeree company or of any
securities exchange offeror (being any offeror other than an offeror in
respect of which it has been announced that its offer is, or is likely to be,
solely in cash) must make an Opening Position Disclosure following the
commencement of the offer period and, if later, following the announcement in
which any securities exchange offeror is first identified. An Opening Position
Disclosure must contain details of the person's interests and short positions
in, and rights to subscribe for, any relevant securities of each of (i) the
offeree company and (ii) any securities exchange offeror(s). An Opening
Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no
later than 3.30 pm (London time) on the 10th business day following the
commencement of the Offer Period and, if appropriate, by no later than 3.30 pm
(London time) on the 10th business day following the announcement in which any
securities exchange offeror is first identified. Relevant persons who deal in
the relevant securities of the offeree company or of a securities exchange
offeror prior to the deadline for making an Opening Position Disclosure must
instead make a Dealing Disclosure. 
 
Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1
per cent. or more of any class of relevant securities of the offeree company
or of any securities exchange offeror must make a Dealing Disclosure if the
person deals in any relevant securities of the offeree company or of any
securities exchange offeror. A Dealing Disclosure must contain details of the
dealing concerned and of the person's interests and short positions in, and
rights to subscribe for, any relevant securities of each of (i) the offeree
company and (ii) any securities exchange offeror(s), save to the extent that
these details have previously been disclosed under Rule 8. A Dealing
Disclosure by a person to whom Rule 8.3(b) applies must be made by no later
than 3.30 pm (London time) on the business day following the date of the
relevant dealing. 
 
If two or more persons act together pursuant to an agreement or understanding,
whether formal or informal, to acquire or control an interest in relevant
securities of an offeree company or a securities exchange offeror, they will
be deemed to be a single person for the purpose of Rule 8.3. 
 
Opening Position Disclosures must also be made by the offeree company and by
any offeror and Dealing Disclosures must also be made by the offeree company,
by any offeror and by any persons acting in concert with any of them (see
Rules 8.1, 8.2 and 8.4). 
 
Details of the offeree and offeror companies in respect of whose relevant
securities Opening Position Disclosures and Dealing Disclosures must be made
can be found in the Disclosure Table on the Takeover Panel's website at
www.thetakeoverpanel.org.uk, including details of the number of relevant
securities in issue, when the offer period commenced and when any offeror was
first identified. You should contact the Panel's Market Surveillance Unit on
+44 (0)20 7638 0129 if you are in any doubt as to whether you are required to
make an Opening Position Disclosure or a Dealing Disclosure. 
 
Information relating to Xchanging Shareholders 
 
Please be aware that addresses, electronic addresses and certain other
information provided by Xchanging Shareholders, persons with information
rights and other relevant persons for the receipt of communications from
Xchanging may be provided to Capita during the Offer Period as required under
Section 4 of Appendix 4 to the Code. 
 
Publication on website 
 
A copy of this announcement will be available, subject to certain restrictions
relating to persons resident in Restricted Jurisdictions, for inspection on
Capita's website at
http://investors.capita.co.uk/capita-offer-for-xchanging-plc.aspx and on
Xchanging's website at www.xchanging.com by no later than 12 noon (London
time) on 15 October 2015. For the avoidance of doubt, the contents of those
websites are not incorporated, and do not form part of, this announcement. 
 
You may request a hard copy of this announcement (any information incorporated
by reference in this announcement) by contacting Xchanging's registrar,
Equiniti Limited, at Aspect House, Spencer Road, Lancing, West Sussex, BN99
6DA, United Kingdom or on 0871 384 2030 (calls to this number cost 10 pence
per minute plus your phone company's access charge, lines are open 8.30am to
5.30pm Monday to Friday) with an address to which the hard copy may be sent.
If calling from outside the UK, use +44 121 415 7047. It is important that you
note that unless you make such a request, a hard copy of this announcement and
any such information incorporated by reference in it will not be sent to you.
You may also request that all future documents, announcements and information
to be sent to you in relation to the Offer should be in hard copy form. 
 
Capita Share Issue 
 
This announcement does not constitute an offer to sell, or a solicitation of
offers to purchase or subscribe for, securities in the United States or any
other jurisdiction. The securities to be issued in the Capita Share Issue (if
effected) referred to herein have not been, and will not be, registered under
the U.S. Securities Act, and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
There is no intention to register any portion of the Capita Share Issue (if
effected) in the United States or to conduct a public offering of securities
pursuant to the Capita Share Issue (if effected) in the United States. This
announcement does not solicit money, securities or any other type of
consideration in connection with the Capita Share Issue (if effected) and, if
any money, securities or other type of consideration is sent in response
hereto, it will not be accepted. 
 
Rounding 
 
Certain figures included in this announcement have been subjected to rounding
adjustments. Accordingly, figures shown for the same category presented in
different tables may vary slightly and figures shown as totals in certain
tables may not be an arithmetic aggregation of the figures that precede them. 
 
APPENDIX 1 
 
CONDITIONS AND FURTHER TERMS OF THE OFFER 
 
PART 1 
 
CONDITIONS OF THE OFFER 
 
The Offer will be made on the terms and conditions set out in this Appendix
and in the Offer Document and the Form of Acceptance. 
 
1.         Conditions to the Offer 
 


- More to follow, for following part double click  ID:nRSN1950Cc