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NEW YORK As technology giants and private equity firms look for potential acquisition targets, customer relationship company Convergys Corp (CVG.N) may spark renewed interest, several sources familiar with the situation said.
Shares of Convergys rose as high as 3 percent on the New York Stock Exchange on Thursday, before ending up 1.75 percent at $14.53 per share.
Convergys, which provides outsourced customer care and billing in places like India and the Philippines, reviewed strategic alternatives last summer, including the possible sale of the company or of certain assets, one of the sources said.
No deal happened because prospective bidders offered prices that fell short of the board's expectations amid concern about the dynamics of the industry, which has been in flux over the last few years due to declining demand for outsourcing services, the source said.
The company, which has a market value of $1.7 billion, never made the review public.
Convergys has all the ingredients to become a target for a takeover of all or pieces of the company: an activist shareholder, a new CEO, and an improving business model within a consolidating industry, three sources said.
Hedge fund Jana Partners, which owns 6.35 percent of Convergys, won board seats in 2009 that included Jana founder Barry Rosenstein. The fund was also instrumental in persuading
Jeffrey Fox, former chief operating officer of Alltel, to take the helm at Convergys a year ago, a source familiar with the situation said.
"(Convergys) is in a space that is consolidating, you have two businesses that one would argue don't logically fit together, and they do have an activist. You put all the pieces together and ultimately something happens with these companies," said one of the sources.
During Convergys' review last summer, its stock was trading at around $10, close to all-time lows in 2008. Macroeconomic factors were a big part of the uncertainty among possible suitors, as customer demand for call centers and billings businesses had declined over the last two years due to the financial downturn.
For now, there may be little urgency to Convergys' next move.
The stock price has risen more than 40 percent since last summer, and with a pick-up in demand in its core businesses, the board may decide against another strategic review.
Convergys was spun off from Cincinnati Bell (CBB.N) in December 1998. The call centers business currently comprises 85 percent of its revenue, while real-time billing services to both wireless and wireline providers provides the rest.
Fox's goal has been to simplify Convergys' business model. The company has sold off a number of assets, including the Human Resources Management (HRM) division last year and, more recently, a small finance and accounting business.
"It's almost like Convergys has started to do some of the things that a buyer would naturally do themselves," said Dave Koning, analyst at Robert W. Baird & Co.
Fox aims to post better numbers and then possibly "decomplex the company," said a separate source close to the situation.
Although private equity firms would be the likely buyer for the entire company, historically they have not been fond of the call center industry and would find Convergys' combined businesses complex to manage, one of the sources said.
A Convergys spokesman, John Pratt, declined to comment for this story.
"People are thinking they will sell their billing business at some point," said Shlomo Rosenbaum, an analyst at Stifel Nicolaus & Co Inc. A sale could occur by 2012, he said.
"I think that is in the cards, but I don't think anyone else is going to want to buy it until they are able to show that the revenue has been able to grow again," he added.
Once that happens, potential buyers could include Amdocs Ltd DOX.N, SAP AG (SAPG.DE) and Oracle Corp ORCL.O, one of the sources said.
Although a sale of the billings business was one of the strategies reviewed last summer, at the time the business had not achieved sustained, stable cash flow and was losing some of its business with customers AT&T Inc (T.N) and Sprint Nextel Corp (S.N), said that source.
"There are certainly people interested in buying that business," said a fourth source, adding that it was not yet for sale and that some within the business opposed such a move.
As for selling the call center division, Robert W. Baird analyst Koning said interest could come from abroad, including firms like France-based Teleperformance SA (ROCH.PA) and privately held Spanish company Atento Group, two of the largest worldwide call center companies.
(Additional reporting by Soyoung Kim in New York; editing by John Wallace)