Beating the odds

Xchanging’s successful takeover of Cambridge Solutions was complicated by the interplay between Indian takeover laws and UK market practice. Laurence Levy and Sean Skiffington explain

On 9 April, Xchanging completed its acquisition of 75% of the fully diluted share capital of Cambridge Solutions. The deal involved complicated structuring considerations as the purchaser was forced to contend with multiple sellers and complex takeover laws in its bid to complete the first acquisition of an Indian-listed company by a UK public listed company.

The target company, Cambridge Solutions, provides business process outsourcing (BPO) and information technology services in the US, Australia and India. It is listed on the Bombay, Ahmedabad and Madras stock exchanges, as well as on the National Stock Exchange of India. The company has offices in eight countries across four continents and approximately 4,500 employees.

Prior to the deal, the major shareholders in Cambridge Solutions were Scandent, a holding company with interests in various industries throughout the world; the Aon Minet Pension Scheme, a UK-based pension fund affiliated with Aon Corporation; and Katra Finance, the investment arm of the Katra Group. Since its establishment in 2001 by Ramesh and Katharin Vangal, the Katra Group has built a strategic presence across diverse sectors including health, technology, infrastructure, marine logistics, agricultural businesses, leisure and lifestyle products and services.

The acquirer, Xchanging, is a business processing company listed on the London Stock Exchange. It provides a range of industry-specific services to the insurance and financial markets sectors, as well as procurement, finance and accounting, human resources and technology infrastructure services to customers across a broad range of industries. Prior to the completion of the acquisition, Xchanging had more than 4,300 employees in seven countries.

The deal-making commenced on 3 October 2008, when Scandent Holdings Mauritius, the trustees of the Aon Minet Pension Scheme, Xchanging and Xchanging (Mauritius) entered into a sale and purchase agreement and Katra Finance, Xchanging and Xchanging (Mauritius) entered into a second sale and purchase agreement. In these agreements, Scandent, Aon and Katra agreed to sell their shares in Cambridge Solutions to Xchanging for an aggregate price of around Rs3.7 billion (US$76.5 million) in cash plus 15.2 million ordinary shares in Xchanging. Xchanging was also required to make an open offer to acquire up to 20% of the fully diluted voting share capital of Cambridge from Cambridge’s public shareholders.

Structural considerations

Principals from Xchanging and Scandent took the lead role on the structuring phase of the transaction, as well as for much of the negotiation and execution phases. Negotiations on the legal aspects of the deal began in late April 2008, at which point English and Indian corporate counsel became heavily involved.

As it was keen to maintain a listing in India, Xchanging expressed an interest in acquiring exactly 75% of Cambridge’s fully diluted issued share capital – no more and no less. If it acquired any more it would be required to bring down its shareholding to 75% to comply with free-float requirements, or to make a delisting offer under the terms of the Securities and Exchange Board of India (SEBI) Delisting of Securities Guidelines, 2003.

Laurence Levy is a partner and Sean Skiffington is a senior associate at Shearman & Sterling in London. The firm has approximately 900 lawyers in 19 offices in 13 countries worldwide. Both Levy and Skiffington represented Scandent in the disposition of its interest in Cambridge to Xchanging.