COMPUTER SCIENCES CORP
FORM 8-K
(Current report filing)
Filed 12/09/15 for the Period Ending 12/09/15
Address
1775 TYSONS BOULEVARD
TYSONS, VA 22102
Telephone
7032454593
CIK
0000023082
Symbol
CSC
SIC Code
7373 - Computer Integrated Systems Design
Industry
Computer Services
Sector
Technology
Fiscal Year
04/01
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (
Date of earliest event reported):
December 9, 2015
COMPUTER SCIENCES CORPORATION
(Exact name of Registrant as specified in its charter)Nevada
1-4850
95-2043126
(State or Other Jurisdiction of Incorporation) (Commission File Number) (I.R.S. Employer Identification No.)
3170 Fairview Park Drive
22042
Falls Church, Virginia
(Zip Code)(Address of Principal Executive Offices)
Registrant’s telephone number, including area code
(703) 876-1000
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions (
see
General Instruction
A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
Item 1.01 Entry into a Material Definitive Agreement.
Rule2.7Announcement
On December 9, 2015, Computer Sciences Corporation, a Nevada corporation (the “Company”), issued an announcement (the “Rule 2.7 Announcement”) pursuant to Rule 2.7 of the United Kingdom City Code on Takeovers and Mergers (the “UK Takeover Code”) disclosing that the boards of directors of the Company and Xchanging plc, a public limited company registered in England and Wales (“Xchanging”), had reached agreement on the terms of a recommended cash offer for Xchanging by CSC Computer Sciences International Operations Limited, a wholly owned subsidiary of the Company (“CSC Bidco”), pursuant to which CSC Bidco will acquire the entire issued and to be issued ordinary share capital of Xchanging (the “Offer”). Under the terms of the Offer, Xchanging shareholders will receive, for each share of Xchanging held, 190 pence in cash. The Offer values the entire issued and to be issued ordinary share capital of Xchanging at approximately £480 million on the basis of a fully-diluted share capital of 252,533,981 ordinary shares (approximately $720 million based upon an exchange rate of USD:GBP 1.501). It is intended that the Offer will be implemented by way of a takeover offer under Part 28 of the United Kingdom Companies Act 2006, as amended, and the UK Takeover Code and will be funded with existing cash resources of the Company and its subsidiaries. The Offer is conditioned upon, among other things, valid acceptances being received in respect of the Xchanging ordinary shares which, together with any Xchanging ordinary shares acquired by CSC Bidco (whether pursuant to the Offer or otherwise), constitute not less than 75 percent of the nominal value of the Xchanging ordinary shares to which the Offer relates and which represent not less than 75 percent of the voting rights attached to such Xchanging ordinary shares, as well as the receipt of certain regulatory approvals. The conditions to the Offer are set out in full in Appendix I to the Rule 2.7 Announcement. Subject to the satisfaction or, where applicable, waiver of these conditions, the Offer is expected to complete during the next six months. Co-operationAgreement
On December 9, 2015, CSC Bidco and Xchanging entered into a co-operation agreement in relation to the Offer (the “Co-operation Agreement”). Pursuant to the Co-operation Agreement, CSC Bidco and Xchanging have agreed to co-operate with each other, and to provide each other with reasonable information and assistance, for the purposes of obtaining the required regulatory and antitrust clearances. The Co-operation Agreement will terminate if the Offer is withdrawn, lapses or if a third party announces a firm intention to make an offer for Xchanging pursuant to Rule 2.7 of the UK Takeover Code at a value which is greater than the value of the Offer and which is recommended by the Xchanging board of directors.
The foregoing summary of the Offer, the Rule 2.7 Announcement and the Co-operation Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Rule 2.7 Announcement and the Co-operation Agreement, which are attached as Exhibits 2.1 and 2.2, respectively, and each incorporated herein by reference.
Item 7.01 Regulation FD Disclosure.
On December 9, 2015, the Company issued a press release announcing the terms of the Offer by the Company to acquire all of the issued and to be issued share capital of Xchanging. The press release, filed as Exhibit 99.1 to this Current Report on Form 8-K, is incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
Exhibit No. Description
2.1 Rule 2.7 Announcement, dated December 9, 2015.
2.2 Co-operation Agreement, dated as of December 9, 2015, between CSC Computer Sciences International Operations Limited and Xchanging plc.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereto duly authorized.
COMPUTER SCIENCES CORPORATION
Dated: December 9, 2015
By: /s/ Paul N. Saleh
Paul N. Saleh
Executive Vice President and Chief Financial Officer
Exhibit Index
Exhibit No. Description
2.1 Rule 2.7 Announcement, dated December 9, 2015.
2.2 Co-operation Agreement, dated as of December 9, 2015, between CSC Computer Sciences International Operations Limited and Xchanging plc.
Exhibit 2.1
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION
9 December 2015
RECOMMENDED CASH OFFER for
Xchanging plc by
CSC Computer Sciences International Operations Limited (a wholly owned subsidiary of Computer Sciences Corporation)
Summary
• The boards of directors of Xchanging plc (“ Xchanging ”) and Computer Sciences Corporation (“ CSC ”) are pleased to announce that they have reached agreement on the terms of a recommended cash offer for Xchanging by CSC Computer Sciences International Operations Limited (“ CSC Bidco ”), a wholly owned subsidiary of CSC, pursuant to which CSC Bidco will acquire the entire issued and to be issued ordinary share capital of Xchanging (the “ Offer ”).
• Under the terms of the Offer, Xchanging Shareholders will receive:
for each Xchanging Share held, 190 pence in cash
The Offer represents a premium of approximately: • 72 per cent. to the Closing Price of 111 pence per Xchanging Share on 2 October 2015 (being the last Business Day prior to the start of the Offer Period); • 81 per cent. to the average Closing Price of 105 pence per Xchanging Share for the three months ended 2 October 2015; and • 19 per cent. to the offer price of 160 pence per Xchanging Share which was announced by Capita on 14 October 2015. • The Offer values the entire issued and to be issued ordinary share capital of Xchanging at approximately £480 million on the basis of a fully-diluted share capital of 252,533,981 Xchanging Shares. The consideration payable under the Offer will be funded through CSC’s existing cash resources. • It is intended that the Offer will be implemented by way of a takeover offer under the Code and within the meaning of Part 28 of the Companies Act. • The Xchanging Directors, who have been so advised by Lazard, consider the terms of the Offer to be fair and reasonable. In providing advice to the Xchanging Directors, Lazard has taken into account the commercial assessments of the Xchanging Directors. Lazard is providing independent financial advice to the Xchanging Directors for the purposes of Rule 3 of the Code.
• Accordingly, the Xchanging Directors intend to unanimously recommend that Xchanging Shareholders accept the Offer. Each Xchanging Director holding Xchanging Shares has irrevocably undertaken to accept the Offer in respect of his own Xchanging Shares, being in aggregate a total of 1,137,804 Xchanging Shares, representing approximately 0.46 per cent. of the existing ordinary share capital of Xchanging in issue on 8 December 2015 (being the latest practicable date prior to this announcement).
• In evaluating the Offer, the Xchanging Board has considered various aspects of the Offer, including valuation, transaction timing and execution risk, and considers the Offer to represent a superior offer for Xchanging Shareholders, as compared to other offers. Accordingly, the Xchanging Board has withdrawn its recommendation for the Capita offer and intends to recommend that Xchanging Shareholders accept the Offer. • CSC Bidco has received irrevocable undertakings from Odey, Artemis, Fidelity and T. Rowe Price, institutional shareholders of Xchanging, to accept the Offer, in respect of a total of 92,102,372 Xchanging Shares, representing approximately 37.19 per cent. of the existing ordinary share capital of Xchanging in issue on 8 December 2015 (being the latest practicable date prior to this announcement). The irrevocable undertakings received from Odey, Artemis, Fidelity and T. Rowe Price will cease to be binding in the event of a competing offer for Xchanging, the value of which exceeds the value of the Offer by 10 per cent. or more (in the case of Artemis or T. Rowe Price) or 12 per cent. or more (in the case of Odey or Fidelity).
• In addition, CSC Bidco has received a commitment from Farringdon, an institutional investor, in respect of 10,000,000 Xchanging Shares, representing approximately 4.03 per cent. of the existing ordinary share capital of Xchanging in issue on 8 December 2015 (the latest practicable date prior to this announcement), over which Farringdon has a contract for difference, to request that the counterparty to the contract for difference delivers the relevant Xchanging Shares to Farringdon and, if such shares are so delivered, to accept the Offer in respect of such shares. This commitment from Farringdon will cease to be binding in the event of a competing offer for Xchanging, the value of which exceeds the value of the Offer by 12 per cent. or more. • In addition, CSC Bidco has received a letter of intent from Threadneedle in respect of a total of 13,423,715 Xchanging Shares, representing approximately 5.42 per cent. of the existing ordinary share capital of Xchanging in issue on 8 December 2015 (being the latest practicable date prior to this announcement). • In aggregate, therefore, irrevocable undertakings, other commitments and a letter of intent to accept the Offer have been received in respect of a total of 116,663,891 Xchanging Shares, representing approximately 47.07 per cent. of the existing ordinary share capital of Xchanging in issue on 8 December 2015 (being the latest practicable date prior to this announcement). Further details of these irrevocable undertakings, other commitments and the letter of intent are set out in Appendix III to this announcement.
• CSC is a global leader of next-generation information technology services and solutions. CSC's mission is to enable superior returns on its clients’ technology investments through best-in-class industry solutions, domain expertise and global scale. CSC has approximately 56,000 employees and revenue of US$7.4 billion for the 12 months ended 2 October 2015. CSC’s shares are listed on the NYSE (CSC). As at 8 December 2015 (being the latest practicable date prior to this announcement) CSC has a market capitalisation of US$4.2 billion (£2.8 billion). • Further details of the Offer will be set out in the Offer Document which will be sent to Xchanging Shareholders within 28 days of the date of this announcement (subject to any extension agreed by CSC Bidco and Xchanging with the consent of the Panel). Subject to the satisfaction or, where applicable, waiver of the Conditions, the Offer is expected to complete in the next six months. An expected timetable of principal events will be included in the Offer Document. Commenting on the Offer, Geoff Unwin, Chairman of Xchanging, said: “ThetermsoftheOffer,whichrepresentasignificantpremiumof81%totheaverageClosingPriceof105penceperXchangingShareforthethree months ended 2 October 2015 and 19% to the offer price of 160 pence per Xchanging Share announced by Capita on 14 October 2015, provides certainty,incash,toXchangingShareholders
today.TheXchangingBoardhaswithdrawnitsrecommendationfortheCapitaofferandisnowrecommendingthatXchangingShareholdersaccept theOfferfromCSC.”
Commenting on the Offer, J. Michael Lawrie, President and CEO of CSC, said:
“CSC leads clients on their digital transformation journeys. Xchanging’s capabilities and experience in the commercial insurance market would complementCSC’sglobalinsurancepresenceinsoftware,outsourcingandservices.IlookforwardtowelcomingXchangingtotheCSCfamilyaswe continuetogrowourinsurancebusinessandinvestinourdifferentiatednext-generationsolutions.”
This summary should be read in conjunction with, and is subject to, the accompanying full text of this announcement (including the Appendices). The Offer will be subject to the satisfaction or, where applicable, waiver of the Conditions and certain further terms set out in Appendix I to this announcement and to the full terms and conditions which will be set out in the Offer Document. Appendix I to this announcement contains the Conditions to, and certain further terms of, the Offer. Appendix II to this announcement contains further details of the sources of information and bases of calculations set out in this announcement. Appendix III to this announcement contains further details of the irrevocable undertakings, other commitments and the letter of intent. Appendix IV to this announcement contains definitions of certain expressions used in this summary and in this announcement.
Xchanging and CSC will hold a conference call to discuss the Offer at 8.30 am GMT (London time) today, Wednesday 9 December 2015. To participate on the call, please dial +44 20 3427 1909 and use the passcode 2748244.
Enquiries: CSC and CSC Bidco Paul N. Saleh, Chief Financial Officer H.C. Charles Diao , Vice President, Finance & Corporate Treasurer Neil DeSilva, Investor Relations Rich Adamonis, Media Relations Tel: +1 703 876 1000 Tel: +1 703 876 1000 Tel: +1 703 641 3000 Tel: +1 862 228 3481
Goldman Sachs (financial adviser to CSC and CSC Bidco)
Nick Harper Jonathan Hall Colin Ryan Nick Pomponi Tel: +44 (0) 20 7774 1000 Tel: +1 415 393 7500 Xchanging Tel: +44 (0) 20 3604 6999 Geoff Unwin, Chairman Ken Lever, Chief Executive
Lazard (financial adviser and Rule 3 adviser to Xchanging) Tel: +44 (0) 20 7187 2000 William Rucker
Cyrus Kapadia Olivier Christnacht
Investec Bank plc (corporate broker to Xchanging) Tel: +44 (0) 20 7597 4000 Christopher Baird
James Rudd
Liberum (corporate broker to Xchanging)
Peter Tracey Neil Patel
Tel: +44 (0) 20 3100 2000
Maitland (public relations adviser to Xchanging) Tel: +44 (0) 20 7379 5151 Emma Burdett
Dan Yea
Goldman Sachs International, which is authorised by the PRA and regulated by the FCA and the PRA in the United Kingdom, and its affiliate, Goldman,Sachs&Co.,areactingexclusivelyforCSCandCSCBidcoandnooneelseinconnectionwiththeOfferoranyothermatterreferredtoin thisannouncementandwillnotberesponsibletoanyoneotherthanCSCandCSCBidcoforprovidingtheprotectionsaffordedtoclientsofGoldman Sachs,orforprovidingadviceinconnectionwiththeOfferoranyothermatterreferredtoherein.
Lazard&Co.,Limited,whichisauthorisedandregulatedbytheFCAintheUnitedKingdom,isactingexclusivelyforXchangingandfornooneelsein connection with the Offer and will not be responsible to anyone other than Xchanging for providing the protections afforded to its clients or for providingadviceinconnectionwiththeOffer.
Neither Lazard & Co., Limited 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 & Co., Limited in connection with this announcement,anystatementcontainedherein,theOfferorotherwise.
InvestecBankplc,whichisauthorisedintheUnitedKingdombythePRAandregulatedbytheFCAandthePRA,isactingexclusivelyforXchanging andno-oneelseinconnectionwiththeOfferandwillnotberesponsibletoanyoneotherthanXchangingforprovidingtheprotectionsaffordedtoits clientsorforprovidingadviceinconnectionwiththeOffer.NeitherInvestecBankplcnoranyofitsaffiliatesowesoracceptsanyduty,liabilityor responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of InvestecBankplcinconnectionwiththisannouncement,anystatementcontainedherein,theOfferorotherwise. LiberumCapitalLimited,whichisauthorisedandregulatedbytheFCAintheUnitedKingdom,isactingexclusivelyforXchangingandfornooneelse inconnection withtheOfferandwillnotberesponsibletoanyoneotherthanXchangingforprovidingtheprotectionsaffordedtoitsclientsorfor providingadviceinconnectionwiththeOffer. Thisannouncementisforinformationpurposesonlyandisnotintendedto,anddoesnot,constituteorformpartofanyoffertosellorinvitationto purchaseanysecuritiesorthesolicitationofanyvoteforapprovalinanyjurisdiction,norshalltherebeanysale,issueortransferofthesecurities referredtointhisannouncementinanyjurisdictionincontraventionofapplicablelaw.TheOfferwillbemadesolelythroughtheOfferDocumentand theaccompanyingFormofAcceptance,whichwilltogethercontainthefulltermsandconditionsoftheOffer,includingdetailsofhowtoacceptthe Offer.AnyresponseinrelationtotheOffershouldbemadeonlyonthebasisoftheinformationcontainedintheOfferDocumentoranydocumentby whichtheOfferismade. ThisannouncementhasbeenpreparedforthepurposeofcomplyingwiththelawsofEnglandandWalesandtheCodeandtheinformationdisclosed maynotbethesameasthatwhichwouldhavebeendisclosedifthisannouncementhadbeenpreparedinaccordancewiththelawsofjurisdictions outsideEnglandandWales. Overseas Shareholders Therelease,publicationordistributionofthisannouncementincertainjurisdictionsmayberestrictedbylaw.Personswhoarenotresidentinthe UnitedKingdomortheUnitedStatesorwhoaresubjecttothelawsofanyjurisdictionotherthantheUnitedKingdomortheUnitedStatesshould inform themselves of, and observe, any applicable legal or regulatory requirements. Further details in relation to overseas shareholders will be containedintheOfferDocument. UnlessotherwisedeterminedbyCSCBidcoorrequiredbytheCode,andinsofaraspermittedbyapplicablelawandregulation,theOfferwillnotbe madeavailable,directlyorindirectly,in,intoorfromaRestrictedJurisdictionwheretodosowouldviolatethelawsinthatjurisdictionandnoperson mayvoteinfavouroftheOfferbyanysuchuse,means,instrumentalityorformwithinaRestrictedJurisdictionoranyotherjurisdictioniftodoso wouldconstituteaviolationofthelawsofthatjurisdiction.Accordingly,copiesofthisannouncementandalldocumentsrelatingtotheOfferarenot being,andmustnotbe,directlyorindirectly,mailedorotherwiseforwarded,distributedorsentin,intoorfromaRestrictedJurisdictionwheretodo so would violate the laws in that jurisdiction, and persons receiving this announcement and all documents relating to the Offer (including agents, custodians,nomineesandtrustees)mustnotmailorotherwiseforward,distributeorsendthemin,intoorfromsuchjurisdictionswheretodosowould violatethelawsinthatjurisdiction.
The availability of the Offer to Xchanging Shareholders who are not resident in the United Kingdom may be affected by the laws of the relevant jurisdictionsinwhichtheyareresident.PersonswhoarenotresidentintheUnitedKingdomshouldinformthemselvesof,andobserve,anyapplicable requirements.
US Shareholders TheOfferwillbemadeforsecuritiesofanEnglishcompanywithalistingontheLondonStockExchange,andXchangingShareholdersintheUnited Statesshouldbeawarethatthisannouncement,theOfferDocumentandanyotherdocumentsrelatingtotheOfferhavebeenorwillbepreparedin accordancewiththeCodeandUKdisclosurerequirements,formatandstyle,allofwhichdifferfromthosegenerallyapplicableintheUnitedStates. Xchanging'sfinancialstatementsandallfinancialinformationthatisincludedinthisannouncement,orthatmaybeincludedintheOfferDocumentor anyotherdocumentsrelatingtotheOffer,havebeenorwillbepreparedinaccordancewithInternationalFinancialReportingStandardsadoptedin theEuropeanUnionandmaynotbecomparabletothefinancialstatementsorotherfinancialinformationofUScompanies. TheOfferwillbeforthesecuritiesofanon-UScompanywhichdoesnothavesecuritiesregisteredunderSection12oftheUSSecuritiesExchangeAct. TheOfferwillbemadeintheUnitedStatespursuanttoSection14(e)of,andRegulation14Eunder,theUSSecuritiesExchangeAct,andotherwisein accordancewiththerequirementsoftheCode.Accordingly,theOfferwillbesubjecttodisclosureandotherproceduralrequirements,includingwith respecttowithdrawalrights,offertimetable,settlementproceduresandtimingofpaymentsthataredifferentfromthoseapplicableunderUSdomestic tenderofferproceduresandlaws.IntheUnitedStates,theOfferwillbedeemedmadesolelybyCSCBidcoandnotbyanyofitsfinancialadvisers.
In accordance with, and to the extent permitted by, the Code, normal UK market practice and Rule 14e-5 under the US Securities Exchange Act, CSC Bidco or its nominees or brokers (acting as agents) may from time to time make certain purchases of, or arrangements to purchase, Xchanging Shares outside the United States, other than pursuant to the Offer, before or during the period in which the Offer remains open for acceptance. Thesepurchasesmayoccureitherintheopenmarketatprevailingpricesorinprivatetransactionsatnegotiatedprices.Suchpurchases, orarrangementstopurchase,willcomplywithallapplicableUKrules,includingtheCodeandtherulesoftheLondonStockExchange,andRule14e-5undertheUSSecuritiesExchangeActtotheextentapplicable.Inaddition,inaccordancewith,andtotheextentpermittedby,theCode,normalUK marketpracticeandRule14e-5undertheUSSecuritiesExchangeAct,GoldmanSachsanditsaffiliateswillcontinuetoactasexemptprincipaltraders inXchangingSharesontheLondonStockExchangeandengageincertainotherpurchasingactivitiesconsistentwiththeirrespectivenormalandusual practiceandapplicablelaw.Any information about such purchases will be disclosed on a next day basis to the Panel and will be available to all investors (including US investors) from any Regulatory Information Service including the Regulatory News Service on the London Stock Exchange website, www.londonstockexchange.com.
ThereceiptofcashpursuanttotheOfferbyaUSholderofXchangingSharesmaybeataxabletransactionforUSfederalincometaxpurposesand underapplicableUSstateandlocal,aswellasforeignandother,taxlaws.Each US shareholder of Xchanging is urged to consult with his, her or its independent professional adviser regarding any acceptance of the Offer including, without limitation, to consider the tax consequences associated with such holder's acceptance of the Offer. Furthermore,thepaymentandsettlementprocedurewithrespecttotheOfferwillcomplywiththerelevant United Kingdom rules, which differ from the United States payment and settlement procedures, particularly with regard to the date of payment of consideration.
NeithertheUSSecuritiesandExchangeCommissionnoranyotherUSstatesecuritiescommissionhasapprovedordisapprovedtheOffer,orpassed judgmentuponthefairnessormeritsoftheOfferorpassedjudgmentupontheadequacyorcompletenessofthisannouncementortheOfferDocument. Anyrepresentationtothecontraryisacriminaloffence.
Forward Looking Statements
Thisannouncementcontainsstatementsthatareormaybeforwardlookingstatements.Allstatementsotherthanstatementsofhistoricalfactsincluded in this announcement may be forward looking statements. Without limitation, any statements preceded or followed by or that include the words “targets”,“plans”,“believes”,“expects”,“aims”,“intends”,“will”,“should”,“could”,“would”,“may”,“anticipates”,“estimates”,“synergy”, “cost-saving”,“projects”,“goal”or“strategy”or,wordsortermsofsimilarsubstanceorthenegativethereof,are
forward looking statements. Forward looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues,earnings,synergies,economicperformance,indebtedness,financialcondition,dividendpolicy,lossesandfutureprospects;(ii)businessand managementstrategiesandtheexpansionandgrowthofCSCBidco’sorXchanging’soperationsandpotentialsynergiesresultingfromtheOffer;and (iii)theeffectsofgovernmentregulationonCSCBidco’sorXchanging’sbusiness. Theseforwardlookingstatementsarenotguaranteesoffuturefinancialperformance.Exceptasexpresslyprovidedinthisannouncement,theyhavenot beenreviewedbytheauditorsofCSCBidcoorXchanging.Suchforwardlookingstatementsinvolveknownandunknownrisksanduncertaintiesthat couldsignificantlyaffectexpectedresultsandarebasedoncertainkeyassumptions.Manyfactorscouldcauseactualresultstodiffermateriallyfrom thoseprojectedorimpliedinanyforwardlookingstatements.Duetosuchuncertaintiesandrisks,readersarecautionednottoplaceunduerelianceon suchforwardlookingstatements,whichspeakonlyasofthedatehereof.AllsubsequentoralorwrittenforwardlookingstatementsattributabletoCSC BidcoorXchangingoranyoftheirrespectivemembers,directors,officersoremployeesoranypersonsactingontheirbehalfareexpresslyqualifiedin theirentiretybythecautionarystatementabove.CSCBidcoandXchangingdisclaimanyobligationtoupdateanyforwardlookingorotherstatements containedherein,exceptasrequiredbyapplicablelaw.
Dealing Disclosure Requirements
UnderRule8.3(a)oftheCode,anypersonwhoisinterestedin1percent.ormoreofanyclassofrelevantsecuritiesofanoffereecompanyorofany securitiesexchangeofferor(beinganyofferorotherthananofferorinrespectofwhichithasbeenannouncedthatitsofferis,orislikelytobe,solely incash)mustmakeanOpeningPositionDisclosurefollowingthecommencementoftheofferperiodand,iflater,followingtheannouncementinwhich anysecuritiesexchangeofferorisfirstidentified.AnOpeningPositionDisclosuremustcontaindetailsoftheperson’sinterestsandshortpositionsin, andrightstosubscribefor,anyrelevantsecuritiesofeachof(i)theoffereecompanyand(ii)anysecuritiesexchangeofferor(s).AnOpeningPosition DisclosurebyapersontowhomRule8.3(a)appliesmustbemadebynolaterthan3.30p.m.(Londontime)onthe10thBusinessDayfollowingthe commencementoftheofferperiodand,ifappropriate,bynolaterthan3.30p.m.(Londontime)onthe10thBusinessDayfollowingtheannouncement inwhichanysecuritiesexchangeofferorisfirstidentified.Relevantpersonswhodealintherelevantsecuritiesoftheoffereecompanyorofasecurities exchangeofferorpriortothedeadlineformakinganOpeningPositionDisclosuremustinsteadmakeaDealingDisclosure.
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 companyorofanysecuritiesexchangeofferormustmakeaDealingDisclosureifthepersondealsinanyrelevantsecuritiesoftheoffereecompanyor ofanysecuritiesexchangeofferor.ADealingDisclosuremustcontaindetailsofthedealingconcernedandoftheperson’sinterestsandshortpositions in,andrightstosubscribefor,anyrelevantsecuritiesofeachof(i)theoffereecompanyand(ii)anysecuritiesexchangeofferor(s),savetotheextent thatthesedetailshavepreviouslybeendisclosedunderRule8oftheCode.ADealingDisclosurebyapersontowhomRule8.3(b)oftheCodeapplies mustbemadebynolaterthan3.30p.m.(Londontime)ontheBusinessDayfollowingthedateoftherelevantdealing.
If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevantsecuritiesofanoffereecompanyorasecuritiesexchangeofferor,theywillbedeemedtobeasinglepersonforthepurposeofRule8.3ofthe Code.
OpeningPositionDisclosuresmustalsobemadebytheoffereecompanyandbyanyofferorandDealingDisclosuresmustalsobemadebytheofferee company,byanyofferorandbyanypersonsactinginconcertwithanyofthem(seeRules8.1,8.2and8.4oftheCode).
DetailsoftheoffereeandofferorcompaniesinrespectofwhoserelevantsecuritiesOpeningPositionDisclosuresandDealingDisclosuresmustbe made can be found in the Disclosure Table on the Panel’s website at www.thetakeoverpanel.org.uk, including details of the number of relevant securitiesinissue,whentheofferperiodcommencedandwhenanyofferorwasfirstidentified.YoushouldcontactthePanel’sMarketSurveillance Unit
on+44(0)2076380129ifyouareinanydoubtastowhetheryouarerequiredtomakeanOpeningPositionDisclosureoraDealingDisclosure.
Information relating to Xchanging Shareholders
Pleasebeawarethataddresses,electronicaddressesandcertaininformationprovidedbyXchangingShareholders,personswithinformationrights andotherrelevantpersonsforthereceiptofcommunicationsfromXchangingmaybeprovidedtoCSCBidcoduringtheOfferPeriodasrequested underSection4ofAppendix4oftheCodetocomplywithRule2.12(c).
Publication on Website
A copy of this announcement together with all information incorporated into this announcement by reference to another source will be available, subject to certain restrictions relating to persons resident in Restricted Jurisdictions on Xchanging’s and CSC’s websites (www.xchanging.com/takeoverbid and www.csc.com respectively) by no later than 12 noon (London time) on the Business Day following the publicationofthisannouncement.Fortheavoidanceofdoubt,thecontentsofthosewebsitesarenotincorporatedbyreferenceinto,anddonotform partof,thisannouncement.
Youmayrequestahardcopyofthisannouncement(andanyinformationincorporatedbyreferenceinthisannouncement)bycontactingXchanging’s registrar,EquinitiLimited,atAspect House,Spencer Road,Lancing, WestSussex, BN996DA,UnitedKingdomoron08713842030(callstothis numbercost10penceperminuteplusyourphonecompany’saccesscharge,linesareopen8.30a.m.to5.30p.m.MondaytoFriday)withanaddress to which the hard copy may be sent. If calling from outside the UK, use +44 121 415 7047. You may also request that all future documents, announcementsandinformationtobesenttoyouinrelationtotheOffershouldbeinhardcopyform.
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION
9 December 2015
RECOMMENDED CASH OFFER for
Xchanging plc by
CSC Computer Sciences International Operations Limited (a wholly owned subsidiary of Computer Sciences Corporation) 1 Introduction
The board of directors of Xchanging plc (“ Xchanging ”) and Computer Sciences Corporation (“ CSC ”) are pleased to announce that they have reached agreement on the terms of a recommended cash offer for Xchanging by CSC Bidco, a wholly owned subsidiary of CSC, pursuant to which CSC Bidco will acquire the entire issued and to be issued ordinary share capital of Xchanging at a price of 190 pence per Xchanging Share. It is intended that the Offer be implemented by means of a takeover offer under the Code. 2 The Offer Under the terms of the Offer, which will be subject to the Conditions and terms set out in Appendix I to this announcement and to the further terms to be set out in the Offer Document, Xchanging Shareholders will receive:
for each Xchanging Share held, 190 pence in cash
The Offer represents a premium of approximately: • 72 per cent. to the Closing Price of 111 pence per Xchanging Share on 2 October 2015 (being the last Business Day prior to the start of the Offer Period); • 81 per cent. to the average Closing Price of 105 pence per Xchanging Share for the three months ended 2 October 2015; and • 19 per cent. to the offer price of 160 pence per Xchanging Share which was announced by Capita on 14 October 2015. The Offer values the entire issued and to be issued ordinary share capital of Xchanging at approximately £480 million on the basis of a fully-diluted share capital of 252,533,981 Xchanging Shares.
3 Background to and reasons for the Offer
CSC leads clients on their digital transformation journeys by providing innovative next-generation technology services and solutions that leverage deep industry expertise, global scale, technology independence and an extensive partner community. CSC serves leading commercial and international public sector organisations throughout the world.
Within the insurance market, CSC is a leader in the provision of software, services and outsourcing. CSC leverages its extensive software capability to build services and deliver next-generation technology to
the insurance industry. CSC is actively engaged with insurers globally, helping them build new digital businesses and transform their current operations. CSC believes that an acquisition of Xchanging represents an attractive opportunity to combine CSC’s global scope in insurance, BPO and IT services with Xchanging’s specific expertise and leading software products that support the commercial insurance market. Xchanging offers CSC a newly modernised suite of insurance platforms, which are well established with the largest insurers, managing agents and brokers. In addition, Xchanging is a strong provider of business process services providing efficient, centralised operations to the London market.
In addition to the insurance sector, CSC sees opportunities to leverage Xchanging’s capabilities in other areas, such as wealth management outsourcing services and infrastructure and applications. CSC will also assess Xchanging’s other businesses to see how they might add value to CSC’s existing offerings and customer relationships. With its global reach, software and technology heritage and next-generation capabilities, CSC is well placed to grow Xchanging globally whilst delivering costs savings. Xchanging represents an opportunity for CSC to: • enhance CSC’s portfolio of next-generation offerings; • provide a platform for Xchanging to realise the potential of its software, technology and BPO solutions and drive client satisfaction; • leverage CSC’s global operating model and proven ability to drive efficiencies; and • deliver significant financial benefits. CSC expects to be able to realise revenue synergies by expanding Xchanging’s market reach, increasing CSC’s sales to Xchanging clients, and building a services business around the Xuber platform. CSC also expects to generate approximately £50 million to £60 million of ongoing annual cost synergies within 12 to 18 months following completion of the Offer, with key opportunities including: • efficiencies in procurement across IT infrastructure and business services as a result of the scale of the combined business and some rationalisation of relevant support organisations; • rationalising and optimising central services and corporate functions, in particular costs associated with human resources, IT, finance and legal support functions including areas associated with Xchanging’s status as a listed company;
• optimising the delivery capability of the combined business to service customers through using established methodologies and best practice within CSC’s Delivery Excellence Office, including the use of CSC’s best shoring strategy; and
• rationalising under-utilised and overlapping facilities in countries where CSC and Xchanging both have existing facilities. One-time costs to achieve the costs synergies are currently estimated to be in the range of £30 million to £35 million.
4 Recommendation
The Xchanging Directors , who have been so advised by Lazard, consider the terms of the Offer to be fair and reasonable. In providing advice to the Xchanging Directors, Lazard has taken into account the commercial assessment of the Xchanging Directors. Lazard is providing independent financial advice for the purposes of Rule 3 of the Code to the Xchanging Directors.
Accordingly, the Xchanging Directors intend to unanimously recommend that Xchanging Shareholders accept the Offer. Each Xchanging Director holding Xchanging Shares has irrevocably undertaken to accept the Offer in respect of his own Xchanging Shares (further details of these irrevocable undertakings are contained in paragraph 5 below). 5 Irrevocable undertakings CSC Bidco has received irrevocable undertakings from each of those Xchanging Directors holding Xchanging Shares to accept the Offer, in respect of a total of 1,137,804 Xchanging Shares, representing approximately 0.46 per cent. of the existing ordinary share capital of Xchanging in issue on 8 December 2015 (being the latest practicable date prior to this announcement).1 In addition, CSC Bidco has received irrevocable undertakings from Odey, Artemis, Fidelity and T. Rowe Price, institutional shareholders of Xchanging, to accept the Offer, in respect of a total of 92,102,372 Xchanging Shares, representing approximately 37.19 per cent. of the existing ordinary share capital of Xchanging in issue on 8 December 2015 (being the latest practicable date prior to this announcement). The irrevocable undertakings received from Odey, Artemis, Fidelity and T. Rowe Price will cease to be binding in the event of a competing offer for Xchanging, the value of which exceeds the value of the Offer by 10 per cent. or more (in the case of Artemis or T. Rowe Price) or 12 per cent. or more (in the case of Odey or Fidelity).
In addition, CSC Bidco has received a commitment from Farringdon, an institutional investor, in respect of 10,000,000 Xchanging Shares, representing approximately 4.03 per cent. of the existing ordinary share capital of Xchanging in issue on 8 December 2015 (the latest practicable date prior to this announcement), over which Farringdon has a contract for difference, to request that the counterparty to the contract for difference delivers the relevant Xchanging Shares to Farringdon and, if such shares are so delivered, to accept the Offer in respect of such shares. This commitment from Farringdon will cease to be binding in the event of a competing offer for Xchanging, the value of which exceeds the value of the Offer by 12 per cent. or more.. In addition, CSC Bidco has received a letter of intent from Threadneedle in respect of a total of 13,423,715 Xchanging Shares, representing approximately 5.42 per cent. of the existing ordinary share capital of Xchanging in issue on 8 December 2015 (being the latest practicable date prior to this announcement). In aggregate, therefore, irrevocable undertakings, other commitments and a letter of intent to accept the Offer have been received in respect of a total of 116,663,891 Xchanging Shares, representing approximately 47.07 per cent. of the existing ordinary share capital of Xchanging in issue on 8 December 2015 (being the latest practicable date prior to this announcement). Further details of these irrevocable undertakings, other commitments and the letter of intent are set out in Appendix III to this announcement.
Copies of the irrevocable undertakings, other commitments and the letter of intent will be on display on Xchanging’s and CSC's websites (www.xchanging.com/takeoverbid and www.csc.com respectively) from 12 noon on 10 December 2015 until the end of the Offer Period.
On 14 October 2015, it was announced that the boards of directors of Capita and Xchanging had reached agreement on the terms of a recommended acquisition by Capita of the entire issued and to be issued share capital of Xchanging for 160 pence per Xchanging Share in cash. The Offer price of 190 pence per Xchanging Share in cash values Xchanging at a premium of 19 per cent. to the Capita offer price. In evaluating the Offer, the Xchanging Board has considered various aspects of the Offer, including valuation, transaction timing and execution risk, and considers the Offer to represent a superior offer for Xchanging Shareholders, as compared to other offers. Accordingly, the Xchanging Board has withdrawn its recommendation of the Capita acquisition and intends to recommend the Offer.
The Xchanging Board has held discussions with CSC since the beginning of November 2015 regarding the terms of the potential acquisition of Xchanging by CSC. On 12 November 2015, Xchanging received a non-binding conditional proposal from CSC to acquire Xchanging at 170 pence per Xchanging Share in cash. Following a period of due diligence and discussions, CSC revised its offer upwards to 190 pence per Xchanging Share.
As noted in the announcement by Xchanging on 16 November 2015, Xchanging also received an indicative proposal from Ebix to acquire Xchanging at 175 pence per Xchanging Share in cash. Discussions have continued with Ebix but Ebix has not reached the stage at which it is prepared to announce a firm intention to make an offer under the Code which can be put before Xchanging Shareholders (and there can be no certainty Ebix will do so). As a result of this announcement, the previous deadline of 5.00 p.m. on 9 December 2015 for other bidders either to announce a firm intention to make an offer or to announce they do not intend to make an offer will be replaced by a new deadline of 5.00 p.m. on the 53rd day following the posting of the Offer Document. The terms of the Offer represent a significant premium, in cash, of: approximately 81 per cent. to the average Closing Price of 105 pence per Xchanging Share for the three months ended 2 October 2015 (being the last Business Day prior to the date of Xchanging’s announcement on 4 October 2015 that it was in discussions with Capita and Apollo); approximately 72 per cent. to the Closing Price per Xchanging Share of 111 pence on 2 October 2015; and approximately 94 per cent. to the average Closing Price of 98 pence per Xchanging Share for the one month period ended 2 October 2015. The Xchanging Directors believe that CSC is a credible counterparty with a strong track-record of acquiring and integrating businesses. CSC’s global scope in insurance, BPO and IT services presents a strong platform from which to accelerate Xchanging’s growth. Given the business segments of the two companies, there is a compelling strategic fit. Accordingly, Xchanging Directors believe that there is strategic logic and potential business benefits to a combination of Xchanging and CSC.
Although the Xchanging Directors believe the Xchanging Group has a strong future as an independent business, the Offer premium places value on the Xchanging Group’s prospects and provides certainty, in cash, to Xchanging Shareholders today as against the inherent uncertainty of the delivery of future value that exists in any business.
7 Information on CSC and CSC Bidco CSC
CSC is a global leader of next-generation information technology services and solutions. CSC’s mission is to enable superior returns on its clients’ technology investments through best-in-class industry solutions, domain expertise and global scale. CSC has approximately 56,000 employees and revenue of US$7.4 billion for the 12 months ended 2 October 2015. CSC’s shares are listed on the NYSE (CSC). As at 8 December 2015 (being the latest practicable date prior to this announcement) CSC has a market capitalisation of US$4.2 billion (£2.8 billion).
CSC Bidco
CSC Bidco is a wholly-owned subsidiary of CSC.
8 Information on Xchanging
Xchanging is a business technology and services provider. Xchanging uses innovation, technology and customer and market insight to provide differentiated solutions to its customers' operational and business processing challenges. Xchanging manages complex, large-scale back and middle office processes for its customers, providing an improved service at a lower cost than when these functions are performed internally. Xchanging's core business is the management of customers' business processes. Xchanging has offerings in three business areas: business process services, technology and procurement.
Business Process Services (BPS)
The BPS business uses innovative technology to manage customers' complex back and middle office functions, including policy administration, claims administration, workers' compensation, broking administration and insurance products processes. The BPS business serves customers in many industry sectors, including Construction and Real Estate, Manufacturing, Retail and Distribution, Healthcare and the Public Sector, but the BPS business has particular domain strength in the P&C Insurance and Banking and Capital Markets sectors. Technology The Technology business provides insurance software, application services and technology infrastructure management services to a range of customers. Its Xuber insurance software products offer a comprehensive range of highly configurable and scalable modules, providing core processing for operators in the non-life commercial insurance market. Xchanging's application services business builds, tests and supports software applications for customers, many of whom are global leaders in their respective industries.
Procurement
The Procurement businesses manage customer spend through procurement management services, including strategic sourcing, category and spend management, spend analytics and e-procurement services. Each service offering is based around Xchanging's core technology platform, MM4, which is available via a stand-alone subscription or as part of four, technology-enabled procurement services: Procurement Outsourcing, Software-as-a-Service, Procurement-as-a-Service and Tail-end Spend Management. In its annual results for the year ended 31 December 2014, Xchanging reported revenue of £573.5 million, gross profit of £69.3 million and a profit before tax of £51.1 million. On 30 July 2015, Xchanging reported its interim results for the six months ended 30 June 2015, with revenue of £240.2 million, gross profit of £27.6 million and a profit before tax of £17.1 million. 9 Current trading Xchanging 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 DuringthefirsthalfoftheyearourBusinessProcessServices(‘BPS’)andTechnologybusinesses(93.5%of1Hnetrevenue)performedwell, in line with or ahead of our expectations. Our Procurement business (6.5% of 1H net revenue) however has delivered a very poor and disappointingperformancewhich,combinedwithcurrencyfactorsinourBPSbusiness,hasimpactedouroverallresultforthehalfyear.
Sector Review
BPS (67.2% of 1H net revenue)
BusinessProcessServiceshasperformedwell.ThetransitionoutoflegacyandlowermarginbusinessinourBrokingandClaimsbusinesses,a processthatisnowalmostcomplete,reducednetrevenueby£9.1million.TheweakeningoftheEuroandAustraliandollaradverselyimpacted netrevenue by£4.6million.Despitethesechallenges, netrevenue forthisbusinessamounted to£134.0million(HY2014:£142.1million). Adjustedoperatingprofitwas£28.4million(HY2014:£26.1million),representinganadjustedoperatingprofitmarginof21.2%(HY2014: 18.4%)largelyreflectingthebenefitofcostreductioninitiativestakenlastyear.
BPS has continued to pursue the technology-enabled processing strategy and we are seeing encouraging signs from recent new offerings. RoboticProcessAutomationhasbeenembeddedinouroperationsandisnowbeingtakentoourcustomersaspartofourenhancedservice offering.
Wehavenowcombined ouroriginalBinder360offeringwithBinderCloud fromtheTotalObjectsacquisition attheendof2014.Thenew offering,BinderCloud360,sitsattheheartofournewmenuofDelegatedUnderwritingServices.Launchedin2014,theservicehasbeenwell receivedinthemarket,winninganumberofinitialbrokerandcarriercustomers. InAustralia,thebrokertechnologyplatformX-alt,inwhichwehavea90%interest,launchedinApril2015.Itisbuildingastrongpipelineof newbusiness,winning6newcontractsinthefirsthalfofthisyear. FollowingasuccessfulNetsettpilotinanin-housecorporatesetting,thecurrentpilotwithmembersoftheRuschlikongroupofbrokerand insurancecompaniesisgoingwell.Netsett,withthecontinuedsupportofourpartnerDeutscheBank,isgainingtractionandisanticipatedto generateitsfirstrevenues,albeitsmall,inthesecondhalfoftheyear.
We are working closely with Lloyd’s of London to provide support for their Central Services Refresh Programme to achieve market modernisation. Withinthis,ourcurrentprogramme ofnewtechnology introductions, duetocontinueinto2016,isbeingwellreceived. Our investmentinthecurrentyearindevelopingthistechnologyiskeytoensuringthatweremainatthecentreoftheLondonmarket.
TheexitfromtheWorkCoverworkers’compensationcontractwiththeStateofNewSouthWalesinAustraliaisnowsubstantiallycomplete. InFinancialServices,ourinvestmentintechnologyandrestructuringiswelladvanced.Thebenefitsarestartingtoshow,althoughthereported numbersarebeingadverselyimpactedbythetranslationimpactoftheweakEuroagainstSterling.
Technology (26.3% of 1H net revenue)
Technologyhasalsoperformedwell,despitethecomparativeeffectoftheexitfromtheLondonMetalExchange(‘LME’)contractinMay2014, andtheimpactonadjustedoperatingprofitofahigheramortisationchargeof£5.1million(HY2014:£3.7million).Netrevenuewas£52.4 million(HY2014:£47.1million).Adjustedoperatingprofitwas£4.1million(HY2014:£2.7million),representinganadjustedoperatingprofit marginof7.8%(HY2014:5.7%).
TheacquisitionoftheEuropeaninsurancesoftwarebusinessesfromAgencyportSoftware,announcedon4July2014,wasfinallyclearedby theCompetition andMarketsAuthorityon29April2015.Theprocessnotonlydelayed ourabilitytointegratethebusiness,butalsoputa materialburdenonmanagementresourceaswellasincurringcosts.
However,thisbusinessmeantimecontinuedtoperforminlinewithourexpectationsandtheacquisitionbusinessplan,onastandalonebasis. Followingclearance,wearenowintegratingtheacquisitioninto
ourXuberinsurancesoftwarebusiness,sowecanenjoythefullsynergy,productofferingandnewmarketopportunitybenefitsenvisagedatthe time of the acquisition. In the second half we expect to start to realise the benefit of integration savings, which are anticipated to reach significantlevelsin2016.
Similarly,theTotalObjectsacquisition,completedinDecember2014,iscontributingwellinitsfirstfullhalfyearandhasbeensuccessfully buildingitscustomerbase.
Our Xuber insurance software business continues to strengthen its profile in the market. Some key contracts were won in the first half, includingwithArielRe,withcertainmorematerialcontractsinthepipelineprogressingtowardsclosureduringthesecondhalf.Anumberof implementationsincludingEverestReareatanadvancedstageofcompletion.
WeremainconfidentaboutthepotentialoftheInsuranceSoftwarebusinessandthestrengthofthepipeline,althoughthelengthofthesales cycle,particularlyforlargepolicyadministrationreplacementprojects,meansthetimingofcontractwinsisnoteasytopredict.
InourApplication Services business,thestronggrowthmomentum continueswithgoodflowsofnewbusinessacrosstheentiresector,and importantnewsigningsmadeinourEducationbusinessandintheAsianmarketplace.Wehavewonasignificantnumberofnewclientsand substantiallyincreasedourportfolioofworkwithourexistingcustomers.
GiventhematerialityofcontractsintheXuberpipeline,someofwhicharebasedoninitiallicencerevenuesin-year,thetimingofwinswillbe animportantfactorinXchanging’sfinancialperformancefortheyearasawhole.
Procurement (6.5% of 1H net revenue)
AsforeshadowedinourFirstQuarter2015UpdatepublishedinApril,Procurementhashadadifficultfirsthalfyear.Aweakperformancein the traditional outsourcing business has combined with underperformance in one of the new Tail-end Spend Management contracts, overshadowingtheHYonHYrevenuegrowthoftheacquiredtechnologybusinessestodeliveranoverallunsatisfactoryresult.Netrevenue was £13.0 million (HY 2014: £15.9 million), and the adjusted operating losswas £6.8 million (HY 2014: £1.7 million loss). This was after allocatingcentraloverheadsof£1.8million(HY2014:£1.9million).ThishasresultedinanimpairmentoftheProcurementsectorgoodwillof £47.0millionandanonerouscontractandrelatedassetsexceptionalchargeof£4.1million.Inthe2Hweexpectafurtherexceptionalcharge forrestructuringofc.£3million.
Our Procurement business is comprised of three principal operations: our technology platform offerings comprising the MM4 and Spikes Cavell(acquiredinFebruary2015)spendanalyticsbusinesses;ourtraditionaloutsourcingcontracts;andourTail-endSpendManagement contracts.
Technology platform offerings: revenues from our technology platform offerings, Software-as-a-Service ('SaaS') and Procurement-as-a-Service('PaaS')basedontheMM4technology,continuetogrowfromasmallbase.SpikesCavell,acquiredinFebruary2015tobuildoutthe rangeofofferings,isperformingtoplanandhassecuredsomekeycontractrenewals.Thetechnologybusinesshasgrownrevenueswithnet additionstothecustomerbase,mainlyintheattractiveUSmarket.
Traditional outsourcing: in our First Quarter 2015 Update we noted that the performance of the Procurement business overall was being adverselyimpactedbyourtraditionaloutsourcingbusinesswherecostbasereductionhasbeenlaggingtherateoflossoftraditionalrevenues, impactedbycontractexitsandcontractrenegotiations.Thesecircumstanceshavepersistedthroughoutthefirsthalf.
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 showinginthesecondhalfoftheyear.Whilstthecostsofimplementationhavebeenborneinthefirsthalfasexpected,theassociatedstreamof
newrevenuehasbeenslowtogainmomentumandissignificantlylaggingourexpectations.Thefutureofthiscontractisnowunderactive reviewandithasbeenaccountedforasanonerouscontractinourhalfyearaccounts.
The combined effect of the traditionaloutsourcing and Tail-end Spend Management businesses has significantly impacted the Procurement businessresultoverall.
In our First Quarter 2015 Update we commented that a recovery plan was underway to address the challenges facing the Procurement business,andinthefirsthalf,significantworkhasbeenundertakentomanagethecostbase.However,despiterevenuegrowthinthe,asyet small, technology platform business, anticipated new contracts inthe second quarter did not materialise, resulting inadeterioration ofthe financialyearforecastforProcurementoverall. Wehaveundertakenareviewofoptionsforhowbesttomanagethisbusinessprofitably.Ourdecisionistoaligntheprincipalpartswithother segmentsoftheGroup.Thisisdesignedtofacilitatethepotentialforamaterialreductioninthecostbaseofthebusinessacrossthesecondhalf oftheyearandtoenableustomanagethebusinessprofitably.Asfirmproposalsforcostreductionsareformulatedtheywillbesubjecttolocal legislationonemployeeconsultationinallpotentiallyaffectedcountries. Thetechnologyplatform-basedSaaS/PaaSbusinesswillbeincludedwithinourTechnologybusinessandcomeunderthatsector'sleadership. Wewillcontinuetogotomarketactivelyandsupporttheseofferings,aspartofourexpandingtechnologyrange.
Our outsourcing contracts, being in the nature of business process outsourcing business, will now be operated and delivered by our BPS business,andcomeunderthatsector'sleadership.WeanticipatebeingabletoutiliseourexistingBPSinfrastructuretoachievesignificantcost reductions during the second half of 2015. The procurement outsourcing business will continue with the existing customers and will be an offeringasanupselltothetechnologycustomerrelationships.ThecapabilitytodeliverthecontractswillberetainedwithinBPSandwewill alsofurtherexamineoptionsforimprovingtheefficiencyofthisbusinessthroughthegreateruseofroboticsandoffshoring.
One of the Tail-end Spend Management contracts won in 2014 has proved disappointing, incurring unacceptable losses to date. We are activelyreviewingthecontractwiththecustomertoestablisharesolution.Inthemeantime, thecontractwillbemanagedanddeliveredby BPS,alongsidethetraditionaloutsourcingcontracts.
Tohelpplantoachievemaximumbenefitfromthestrategicrealignmentinthesecondhalfoftheyear,wehaveenlistedexternalsupport.We will continue to report financial information for the Procurement businesses in the near term but ultimately the technology and business processingcomponentsofProcurementwillbereportedwithinTechnologyandBPS.
OUTLOOK
ThereisnodoubtthatthesignificantpartofXchanging'sbusinessisbenefittingfromtheactionsandinvestmentsofrecentyearsandgrowing 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 Companyhasundergoneoverthelastfouryears.Xchangingnowhasaleadinginsurancesoftwarebusinessandanenviablepositioninthe insurancemarket;astablecapitalmarketsbusiness;andagrowingApplicationsServicesbusiness.
Asdescribedabove,ourBPSandTechnologybusinesseshaveperformedstronglyinthefirsthalfoftheyearandtheoutlookisforthisrobust performance tocontinue inthesecond halfoftheyear, although thisisdependent onthetiming ofmaterial Xuber contracts, andcurrency effects.InProcurement,wehaveaclearstrategicobjectivetoaddresstheprofitabilityissues,inthesecondhalfoftheyear.Oursuccessin achievingthiswillalsoaffectourfullyearfinancialperformance.
Our efforts in the second half will be focussed on converting our established and growing pipeline. It will also be focused on achieving a satisfactoryresultfromthereorganisationofthewayinwhichwemanageandoperateourprocurementbusinesswithinBPSandTechnology byaligningouroutsourcingcontractswithourBPSbusinessandusingourTechnology businesstoaccelerate ourprocurement technology offerings.Theoutlookforthefullyearisforatradingperformanceinlinewithlastyearandareturntogrowthinthefullyear2016.”
Since 30 June 2015, Xchanging has continued to trade materially in line with expectations.
10 Management, employees and locations
CSC recognises the skills and experience of the existing management and employees of Xchanging and believes that employees will benefit from the greater opportunities within the combined group.
CSC also recognises that, in order to achieve the expected benefits of the Acquisition, operational and administrative restructuring will be required following the completion of the Offer. CSC intends to form an Integration Management Office (IMO) to carry out a detailed review of Xchanging’s operations and to begin planning for the integration of Xchanging within CSC’s business. No decisions have been made by CSC in relation to that integration and no detailed discussions have been held between CSC and Xchanging in this regard. Until such review occurs, CSC cannot be certain of the potential impact that any such actions will have on employees of the combined group or the location of their places of business or any redeployment of assets, although it is expected that this review will likely result in a reduction in the headcount of the combined group and some rationalisation of facilities. Based on the preliminary analysis completed to date, CSC can however confirm that: • CSC intends to integrate Xchanging within its businesses focused on providing technology solutions and services to the insurance sector; • the combined business is expected to benefit from efficiencies in procurement across its IT infrastructure and business services areas as a result of the scale of the combined business and some rationalisation of relevant support organisations; • areas have been identified across the Xchanging Group where certain functions exist within each individual business unit rather than at central group level. CSC intends to identify areas of overlap in human resources, IT, finance and legal support functions across Xchanging’s business units and with CSC’s business in order to remove duplication and optimise these functions;
• any rationalisation and optimisation of functions and business areas may result in a net reduction in the short term of the current headcount of the relevant areas of CSC’s business combined with Xchanging. At this stage, no specific roles have been identified but it is anticipated that these reductions will be implemented over the first 12 months following completion of the Offer. In addition, CSC plans to optimise the delivery capability of the combined business to service customers through using established methodologies and best practice within CSC’s Delivery Excellence Office, including the use of CSC’s best shoring strategy; • as part of the integration phase, CSC will investigate the opportunity to rationalise facilities in countries where CSC and Xchanging both have existing facilities, largely in the UK and India through CSC’s real estate portfolio programme. At this stage, no specific locations have been identified but it is anticipated that any impact on existing locations will be focused on facilities that are currently underutilised and will be implemented as soon as practicable following completion of the Offer; • following completion of the Offer, certain functions which have historically been related to Xchanging’s status as a listed company may no longer be required or will be reduced in size to reflect Xchanging ceasing to be a listed company; and 17
• the non-executive directors of Xchanging intend to resign as Xchanging Directors on completion of the Offer.
CSC intends that the existing employment rights, including pension rights, of all Xchanging employees will be safeguarded on completion of the Offer.
11 Xchanging Share Schemes
Participants in Xchanging Share Schemes will be contacted regarding the effect of the Offer on their rights under the Xchanging Share Schemes and appropriate proposals will be made to such participants in due course. Further details of the terms of such proposals will be made available in due course to participants in the Xchanging Share Schemes. 12 Financing The cash consideration payable under the Offer is being financed by CSC’s existing cash resources. Goldman Sachs, financial adviser to CSC and CSC Bidco, is satisfied that sufficient cash resources are available to CSC Bidco to enable it to satisfy in full the consideration payable to Xchanging Shareholders in connection with the Offer. 13 Confidentiality Agreement
Xchanging and CSC entered into a confidentiality agreement on 6 November 2015, as amended (the “ Confidentiality Agreement ”).
In the course of discussions relating to the Offer, CSC has received or will receive certain information relating to Xchanging and its subsidiaries, their businesses and the Xchanging Shareholders. Pursuant to the Confidentiality Agreement, CSC has undertaken to keep this information confidential and not to disclose it to third parties except: (a) to its affiliates and its and their respective advisers, agents, representatives, officers, employees and partners on a need-to-know basis; or (b) if required by law or regulation or by any regulatory or governmental authority or stock exchange.
Pursuant to the Confidentiality Agreement, CSC has also undertaken, for a period of 12 months from 6 November 2015, not to make or have any contact in relation to the Acquisition with any shareholder (save for certain institutional Xchanging Shareholders as agreed with Xchanging), director, employee, customer, contractor or sub-contractor of, or supplier or lender to, Xchanging or any of its subsidiaries and not to solicit, engage or employ or offer to employ any director, officer or senior employee of Xchanging or any of its subsidiaries who was involved in the Acquisition, save in certain circumstances.
Save as referred to above, the obligations of CSC pursuant to the Confidentiality Agreement will remain in force until completion of the Offer or, if the Offer fails to complete, until 5 November 2017.
14 Co-operation Agreement
On 9 December 2015, CSC Bidco and Xchanging entered into a co-operation agreement in relation to the Offer (the “ Co-operation Agreement ”) pursuant to which, among certain other matters:
• CSC Bidco and Xchanging have agreed to co-operate with each other, and to provide each other with reasonable information and assistance, for the purposes of obtaining the clearances required to satisfy the Antitrust Conditions and the Regulatory Conditions; • without prejudice to CSC Bidco’s rights in connection with any other Condition, CSC Bidco has agreed to seek the Panel’s consent to
