Convergys to take final bids, sources say - MergerMarket.com
Convergys [NYSE:CVG], the call center operator exploring a sale, has indicated that final bids are due early next week, said two sources briefed on the situation.
Apollo Global Management has been pursuing the company, these sources said. This news service reported earlier this week that the sale process for Cincinnati-based Convergys has seen limited suitor interest for the company, including from financial sponsors, on the back of its weak financial performance.
The two sources said that to their knowledge a couple of strategics did table initial round bids for Convergys earlier on in the sale process. They noted that preliminary bids came in the low USD 20s per share range. At this point, though, the strategic interest appears to be tepid, one of the sources said.
Convergys shares closed on Friday at USD 23.69 per share after declining this week following the report by this news service. The USD 2.25bn enterprise value company trades at around 6.9x projected 2018 EBITDA compared to 7.25x prior to the report.
A buyout of Convergys is likely to be a tough one to execute on given the business outlook for the company.
Last week, Convergys reported a 10% drop in 1Q18 revenue on a constant currency basis as revenue from its top two customers declined. The call center operator forecasts that overall 2018 revenue will fall by 7% on the same basis. Last year, revenue decreased by 4% to USD 2.8bn.
The previous report noted that since Convergys is a turnaround story, the company is a better fit for a financial sponsor or sponsor-backed company, than a trade buyer.
The Wall Street Journal reported after the earnings announcement that Convergys was far along in the sale process and was talking to PE firms and strategics. The newspaper said Convergys started considering options after CEO Andrea Ayers announced plans in January to depart.
The outsourcing group is being advised by longtime adviser Centerview Partners on the sale, as reported.
Elliott Management disclosed a 4.9% stake in Convergys at the end of last year and continued to own the same number of shares at the end of March, according to SEC filings. The activist investor has not filed a 13-D outlining any demands on the company.
Convergys did not return a request for comment. Apollo declined to comment.
Car recalls rise as industry becomes more high-tech
Software errors can potentialy affect millions of vehicles at once
It was when B Williams was driving to her home in Fayetteville, North Carolina, that the burning smell began.
Her BMW 5-series saloon began shaking, the check engine light blinked, and a high pitched whirring pierced through the cabin.
Her car was one of more than 670,000 recalled by the German carmaker last year because of a fire risk — and one of 53m recalled in the US across all brands.
On Friday, BMW announced the same issue would lead to a recall of 294,000 vehicles in the UK.
Cars are becoming safer and more technologically advanced than ever, yet recalls are rising.
The number of recalls in the US alone has tripled in the last 20 years, from 19.4m in 1996 to 53.1m in 2016.
Twenty per cent of all the cars in service in the US have been called back over the past three years. It is an issue inflated in part by recalls related to Takata airbags and the General Motors ignition switch issues, while there are more than 3m UK vehicles currently under recall.
The reason for the rising levels is two-fold.
First, cars are becoming increasingly electronic, meaning that errors in software affect not just a single batch of cars from one plant, but potentially millions across a plethora of nations.
The number of recalls linked to electronic failures has risen by 30 per cent a year since 2012, compared with an average of 5 per cent a year between 2007 and 2012, according to data from consultancy AlixPartners.
The second reason is cost-cutting by car manufacturers.
AlixPartners estimates that global carmakers have cut between a third and a half of the employees in their quality management divisions following the financial crisis.
The staff numbers that have not been fully repleted in the boom years, because of the industry’s need to invest in new technologies, from electric vehicles to self-driving capabilities.
Some of the quality issues have appeared relatively trivial, such as at Lamborghini, which recalled its £1.7m Centenario hypercar this year because the sticker stating the maximum weight allowed in the vehicle was wrong.
Other cases are potentially far more serious, such as Ford’s decision to call back 1.4m vehicles in the US because their steering wheels could come loose, or even fall off.
Once carmakers discover a fault, either from their dealers, or from customer feedback via social media, they face a choice.
The first two considerations are the frequency and the severity of the issue, according to Michael Held at AlixPartners.
But the list of considerations, or risk analysis, also includes a financial calculation of calling and fixing the vehicles.
“Nobody wants to talk about it, but it’s there,” he adds. “Some [carmakers] are more risk averse than others.”
The stakes of getting that risk calculation wrong were laid out last month.
A UK court heard that a former soldier, Narayan Gurung, died after swerving to avoid a stalled BMW affected by a power failure that should have seen the car recalled.
The 2016 incident came after the German carmaker had recalled vehicles potentially affected by a similar fault in the US, South Africa and Australia — but not in Britain, because it believed that only warmer climates would cause the fault to occur.
The group issued a UK recall in April 2017 for 36,000 vehicles, then another one for a further 312,000 cars last month after a BBC investigation revealed the fault was wider than the company had previously disclosed.
While the carmaker has a lower recall rate when compared to many of the manufacturers in the industry, the issue thrust its decision-making process into the spotlight.
Ian Robertson, BMW’s former head of sales and marketing who is now the company’s UK envoy, told the FT’s Future of the Car summit in London this week that the issue was one the company “takes very, very seriously”.
He said: “Like most of the companies in the auto industry, we have separate group of people who are outside of the board who take decisions with local authorities around the world.
“That is a decision process that is normal between the industry and regulators.
“I’m very saddened when an accident happened, and from that perspective the seriousness of recalls should never be underestimated, and it needs to continually be developed.”
Some consumer action groups believe regulators need more powers to force manufacturers to call back cars.
US regulator NHTSA has the right to force a recall, while the UK authority the DVSA only has the authority to suggest actions, something that may change after the BMW incident.
“The government must ensure that the DVSA has the powers that it needs to hold manufacturers to account and protect road-users from the dangers of unsafe vehicles,” says Alex Neill at consumer group Which?
The DVSA says it works with carmakers on recalls, but claims in the BMW case it was not alerted to the facts.
A spokesman said: “We keep our approach to safety recalls constantly under review to ensure we are able to respond, more quickly, to emerging issues and prioritise activities where they are most needed.”
n reaction to disappointing earnings/guidance:
- JWN -6.8%, AMAT -5.3%, CPB -4.6%, AZN -2%
Other news:
- BIDU -4.7% (announced that Qi Lu will no longer serve as COO)
- MYE -2.8% (prices underwritten public offering of 4 mln shares of its common stock at a price to the public of $18.50 per share)
- BOOT -2.4% (public offering of 7.21 million shares of common stock by selling shareholders)
- SWKS -1.8% (may be in sympathy with AMAT)
- XNET -1.3% (COO to resign for personal reasons)
Analyst comments:
- PLNT -0.9% (downgraded to In-Line at Imperial Capital)
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