Capita, the FTSE-100-listed outsourcing giant, this week ended strong market speculation over the future of debt-ridden insurance group Eastgate by snapping up the company for just £9.1m.

Eastgate has struggled with debts of £26m after a disputed purchase of Hambro Assistance from its former parent company Lindsey Morden Group (LMG) in November 1998.

Eastgate is suing LMG for £20m plus interest, back-dated to the purchase of Hambro, because of alleged breaches of representations and warranties.

Following the takeover, Eastgate's name and brand will vanish completely as Capita, a leader in public sector outsourcing, seeks to build its own brand among private clients.

Capita executive chairman Rod Aldridge said: “We see considerable opportunities to enhance both Eastgate and Capita's current service offerings by bringing together the two operations.”

Capita claims the market for outsourcing back office activities in the insurance industry is worth £4bn a year.

“Since our original involvement in Eastgate 18 months ago, we have gained a deeper understanding of this market and remain very enthusiastic about its potential,” Aldridge said.

Capita chief executive Paul Pindar also hinted that there would be redundancies as a result of the takeover.

“Integration will be largely completed over the next three months. Any redundancies that there may be will be apparent by the end of that period,” he said.

Capita first took a stake in Eastgate in March 1999 last year when it took a 20.5% interest in the company. That share subsequently rose to 26%.

Pindar said the legal fight with LMG would not be affected by the takeover.

“Any legal situation that was aris-ing before the acquisition continues after,” he said.