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Ceridian Taken Private; Could Hewitt Be Next

June 13, 2007
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Last month’s $5.3 billion buyout of Ceridian Corp. makes the Minneapolis-based company the latest among a number of HRO providers to go private.

The offer was made by private equity firm Thomas H. Lee Partners and Fidelity National Financial, a Jacksonville, Florida-based insurance claims handler, and is expected to close in the fourth quarter.

It’s likely just a matter of time before more HRO providers follow suit. Affiliated Computer Services founder and chairman Darwin Deason has been working to take his company private.

Similarly in March, Kronos was acquired by private equity firm Hellman & Friedman Capital Partners for $1.8 billion.

"My immediate thought is, who is next?" says Neil McEwen, managing consultant at PA Consulting. "And my immediate answer would be Hewitt Associates."

Rumors have been circulating for months that Hewitt, which has been struggling to revive its HR BPO business, might go private to get away from shareholder scrutiny.

Jennifer Frighetto, a Hewitt spokeswoman, declined to comment.

Ceridian offers HRO services, but has made its name through its payroll processing. The company currently processes payments for more than 110,000 companies globally. Last year, Ceridian’s net income was $173.6 million, or $1.20 a share, on revenue of $1.57 billion.

Ceridian’s acquisition may end the several-months battle between Ceridian and William Ackman, the founder of hedge fund Pershing Capital Management, who has come out publicly against Ceridian’s management style.

As a result, the company named Kathryn Marinello as its new CEO last fall. In February, Ceridian’s board of directors announced that it had hired investment bankers to explore "strategic alternatives to enhance shareholder value," according to a February 13 statement by the board.

The $5.3 billion buyout represents a 17 percent premium over Ceridian’s stock level in February. It marks a 5 percent premium over Ceridian’s share price right before the deal was announced May 30.

Calls to Ackman and Fidelity were not returned. Peter Stoddart, a Ceridian spokesman, said it was premature to say what effect the acquisition would have on the company, but did say that Marinello will remain in place. A spokeswoman for Thomas H. Lee Partners declined to comment.

Ceridian customers and prospective clients should be heartened by the move to go private, says Naomi Bloom, managing partner of Bloom & Wallace, a Fort Myers, Florida-based HRO consultant. Whether the investors fix up the company and sell it or make changes and keep it, Ceridian will be in a better position to invest in its delivery platform than it was under the scrutiny of shareholders, she says.

Ceridian customers should watch which executives stay and which leave, Bloom says.

"I would pay attention to whether or not there is anyone left who understands HR BPO," she says.

Jessica Marquez

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