Author: Site Staff

Ceridian Corp. has accepted a $5.3 billion buyout, making it the latest among a number of HRO providers to go private.

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

The move may end the several-months battle between Minneapolis-based 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 last fall named a new CEO, Kathryn Marinello. In February, Ceridian’s board of directors announced it had hired investment bankers to explore “strategic alternatives to enhance shareholder value,” according to a February 13 statement made 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.

Ceridian offers HRO services but has made a name for itself 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.

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 added 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 outsourcing consultant Bloom & Wallace. 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 their delivery platform than it was under the scrutiny of shareholders, she says.

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

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

And it’s only 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.

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.

Read more about Ceridian.

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STATE OF THE INDUSTRY

The dental and vision plan industries are mature and stable, with a few large companies dominating the markets and reporting slow growth in enrollments and premiums.

The top three dental providers listed here provide coverage for 70 million employees and dependents; the top three vision providers cover 104 million. According to the Bureau of Labor Statistics, 46 percent of all U.S. workers have access to dental benefits and 29 percent have access to vision benefits. Dental insurance premiums for employer-sponsored plans rose 2.7 percent in 2006 for single coverage and 3.7 percent for family coverage, according to the National Association of Dental Plans.

Employer costs for dental and vision plans remain low because both industries rely on high employee co-pays, high volume and primary-care-only provisions. High overall benefits costs, however, continue to fuel employer interest in converting traditional employer-paid dental and vision plans into consumer-directed offerings, discount plans and voluntary benefit plans. .

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In a long-awaited move, Johnson & Johnson announced Tuesday, May 29, that it has signed an HR outsourcing contract with Convergys, marking one of the largest HRO deals to date.

The Cincinnati-based HRO provider estimates that the 10-year contract is worth $1 billion. That puts it slightly behind the 2006 Unilever/Accenture HRO contract in terms of size, says Lisa Rowan, an analyst at IDC. That deal also was valued at $1 billion, but the contract term was seven years.

“This has been a long time in the works and is great news for the industry,” Rowan says.

Johnson & Johnson had been doing its due diligence for an HRO provider since January 2006. In an interview with Workforce Management in November 2006, Kay Foster-Cheek, vice president, human resources, said the New Brunswick, New Jersey-based pharmaceutical company wanted to enable its 2,000 HR managers to be more focused on contributing to the strategic business of their markets.

A spokeswoman for Convergys declined to provide further detail, but analysts say the deal will include a number of HR processes and geographic locations. Johnson & Johnson has 121,000 employees in 57 countries.

“This puts Convergys in the big league with IBM and Accenture,” says Neil McEwen, managing consultant at PA Consulting, adding that “given the size and decentralized nature of Johnson & Johnson, this is going to be a big challenge for Convergys.”

—Jessica Marquez

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Yahoo HotJobs is forming an alliance with GateHouse Media, a move that will expand the job board’s consortium of media partners.

“This partnership is a milestone for us. It allows us to grow the consortium by adding a rich portfolio to the mix,” says Eric van Miltenburg, general manager of Yahoo’s newspaper consortium.

GateHouse Media, based in Fairport, New York, has 87 daily publications, which collectively reach more than 10 million people across 20 states. Terms of the deal were not disclosed.

HotJobs will begin powering online recruitment Web sites for the publications this summer. The publications include the Standard Journal of Milton, Pennsylvania, the Evening Times of Little Falls, New York, and the Nebraska City News of Nebraska City, Nebraska.

HotJobs’ latest partnership, announced Wednesday, May 23, signals that the job board continues to bet heavily on inter-media alliances. Since the time of the newspaper consortium’s launch in November, the group has more than doubled.

There were seven original members of the consortium—Hearst Newspapers, Belo Corp., Cox Newspapers Inc., Journal Register Co., Lee Enterprises Inc., MediaNews Group and E.W. Scripps Co. Combined, there were 176 newspapers in 38 states. Today, there are 16 partners and upwards of 260 newspapers are in the network, according to van Miltenburg.

HotJobs is committing resources to forge ahead with its inter-media strategy. The job board created the dedicated position of general manager of newspaper consortium, which van Miltenburg assumed six months ago. His role is to oversee strategic expansion of the consortium. Van Miltenburg is in the process of assembling a team to help in these endeavors.

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—Gina Ruiz

 

Up to three-quarters of all U.S. corporate pension plans may be frozen or terminated within the next five years, according to a study released Wednesday, May 23, by consulting firm McKinsey & Co.

McKinsey said the return of private defined-benefit plans to healthy fund levels will, ironically, quickly boost the share of companies opting to freeze or terminate their plans from the current level of 25 percent.

In addition, McKinsey predicts looming regulatory and accounting changes will force plan sponsors to quickly adopt sharply different approaches to portfolio construction, leaving long-dominant money managers competing with insurers and investment banks to meet their needs.

At least $1 trillion of the $2.3 trillion now in private-sector pension plans will be invested in “entirely different products and solutions by 2012,” according to the study. Allocations to active domestic long-only equities are expected to plummet by 67 percent, with long-duration fixed income, hedge funds and private equity picking up the bulk of those losses.

Filed by Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Workers’ compensation observers say they hope a $635 million settlement of criminal and civil charges against the maker of OxyContin will deter overuse of addictive and costly painkillers.

The workers’ comp industry has warned for years that OxyContin and other narcotics have been prescribed too often to workers suffering from injuries not severe enough to require the use of such potent drugs.

Following a four-year investigation, the Food and Drug Administration, along with federal prosecutors, the IRS, the Health & Human Services Department and state officials announced May 10 that Stamford, Connecticut-based Purdue Pharma LP and Purdue Frederick Co. had agreed to pay $600 million as part of a settlement of allegations that Purdue sought to profit from “a long-term illegal scheme to promote, market and sell OxyContin,” the FDA said in a statement.

Under settlement terms, the company pleaded guilty to felony charges of misbranding the “addictive and highly abusable drug,” the FDA said.

The company’s president, chief legal officer and a former medical officer pleaded guilty to misdemeanor charges “as being the responsible corporate officers” during illegal promotion of the prescriptive, the FDA said. The three executives agreed to pay nearly $35 million to the state of Virginia as part of the $635 million total, federal prosecutors said.

Use of narcotics in workers’ comp cases is widespread. Preliminary results of a study by the California Workers’ Compensation Institute point to an “alarmingly high” use of narcotics, including OxyContin, to treat “garden variety” lower back sprains and strains.

Litigation, lost workdays and claims costs all increase dramatically when narcotics are prescribed, CWCI’s preliminary results show.

Problems with the abuse or misuse of OxyContin are not unique to workers’ comp cases, observers point out. Similar abuses occur in other areas of health care.

OxyContin is a synthetic narcotic that resembles natural opiates. Its abuse and misuse was publicized several years ago, prompting different organizations to question whether the drug was being over-prescribed.

In early 2004, Washington state’s Department of Labor and Industries cautioned more than 10,000 doctors about over-prescribing opiate-based pain relievers, including OxyContin, to injured workers.

In a letter to the doctors, Washington’s monopoly workers’ comp insurer said the misuse of prescribed painkillers led to 40 to 60 deaths of injured workers in the state during an eight-year period.

The Boca Raton, Florida-based National Council on Compensation Insurance has studied OxyContin usage patterns in workers’ compensation cases and group health plans.

“We have long been concerned about the prevalent use of OxyContin,” says Barry Lipton, senior actuary and practice leader for NCCI. “If you include OxyContin and its generic equivalent, it’s the No. 1 drug prescribed in workers’ compensation ranked by cost. It’s used often in chronic pain management, which, given its addictive properties, we are concerned about.”

Federal prosecutors said Purdue trained its sales force to lie to doctors about OxyContin’s addictive nature, its likelihood for abuse, its ability to cause euphoria and withdrawal symptoms.

Purdue did not return a phone call seeking comment. But in a statement, Purdue Pharma blamed “some employees” who made or told other employees to make certain statements to doctors about OxyContin’s risks for addiction, abuse and withdrawal.

Purdue accepts responsibility and regrets past misstatements, the company said. During the past six years, it changed its training, compliance and monitoring systems while adding warnings and prescribing information for doctors, the company said.

Because OxyContin is not the only narcotic in widespread use among workers’ comp claimants, the NCCI’s Lipton and others say they hope the action against Purdue will serve as a warning about drug marketing and increase awareness about potential addiction.

Opioids such as OxyContin were created for acute pain or “end of life” conditions, says Keith Bateman, VP of workers’ compensation for the Property Casualty Insurers Association of America in Des Plaines, Illinois.

But a number of factors have led to their frequent “off-label” prescribing for ailments for which they were not originally intended, Bateman says.

As far as OxyContin, marketing by the drug’s manufacturer helped increase its use, he says.

“There is an awful lot of off-label use of medications in this country, and a lot of it is in workers’ comp,” Bateman says.

Filed by Roberto Ceniceros of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

The defense of former Brocade CEO Gregory Reyes took a hit when a judge nixed arguments that investors only care about growth. The backdating case against telecom company Brocade has been on the ropes the past few months, but a judge’s ruling earlier this month has given prosecutors a second wind by saying the case does not hinge on investor harm alone.

The case, brought last summer, alleges that Reyes, ex-CFO Antonio Canova and former human resources executive Stephanie Jensen orchestrated a scheme to backdate options and then falsified board compensation committee minutes to “create the appearance” that the options were granted under lower stock prices. As the first backdating case filed by the Securities and Exchange Commission, it has been at the forefront of the backdating scandal, but some thought it might be the last such case after a slew of problems hurt the prosecution.

On May 11, however, prosecutors caught a break as U.S. District Judge Charles Breyer ruled that it didn’t matter that investors were not materially harmed by the alleged backdating. The fact that there was so much backdating and that disclosures were altered are the relevant allegations, Breyer said, turning down a motion by the attorneys representing the former Brocade executives to toss out the case.

Defense counsel Richard Marmaro had filed a motion for summary judgment based on the fact that the alleged backdating of stock option expenses did not harm investors, and that the expenses were not based on generally accepted accounting principles. In his legal briefs, Marmaro has argued that investors looked at cash flows, operating expenses and revenue growth, not whether options were backdated.

The court didn’t buy that premise.

“It does not matter that Brocade was, or is, a successful business enterprise,” Breyer ruled. “Profitable companies, too, owe a duty of honesty to their shareholders.”

Companies need to provide an estimate of the fair value of all outstanding stock options, not just those granted that are in the money, according to a Financial Accounting Standards Board rule cited by the court.

The defense and prosecution both wrestled over the dip in Brocade’s share price when the backdating was made public—SEC lawyers contend it was due to the backdating itself, while Marmaro said it could have been due to the threat of prosecution or enforcement by the government. Calls to Marmaro’s office were not returned.

The Brocade case has had its share of problems. Since the case began, leading prosecutors have been fired or have quit. Witnesses have refused to talk with Reyes’ defense counsel because of the limited immunity, shutting down crucial testimony.

These problems have staved off what could have been a feeding frenzy by other law firms. Shapiro Haber & Urmy, which has been looking to file its own civil lawsuit against Brocade on behalf of investors, now may abandon its pursuit, according to Robert Ditzion, an associate with the firm. The firm is investigating about 100 other companies for alleged backdating.

Jury selection on the Brocade case is expected to begin next month, a source close to the case said.

Filed by Nicholas Rummell of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

Washington state legislators enacted a paid family leave law this month, and as the movement gathers steam, similar pieces of legislation are wending their way through statehouses in Illinois, Massachusetts, New Jersey, New York, Oregon and Texas.

“It’s hard to say whether any of these [bills] are winnable or not,” says Kate Kahan, director of work/family programs at the National Partnership for Women & Families. “But the fact that the conversation is happening at a local level in so many states is hopeful.”

Starting in 2009, Washington’s law will allow workers up to five weeks of leave to take care of a newborn or a newly adopted child. Workers will be paid $250 a week. Companies with 25 or more workers will be required to hold employees’ jobs for them while they take paid leave.

Legislators could not agree on how to finance the program, so the law established a committee that will discuss the issue and report back to the Legislature by January 1, 2008.

The Washington state law was enacted over the objections of the Association of Washington Businesses, which cited the fact that a funding method has not been determined and the measure will place a burden on small businesses that have to hold positions open while employees take leave.

Washington became the second state, after California, to adopt a paid leave program.

California’s program, which was enacted in 2002, is more expansive than Washington’s. Since 2004, it has provided up to six weeks of paid leave for employees taking care of a sick family member or a new baby. California pays 55 percent of workers’ pay, to a maximum of $882 a week, and the program is financed by a 0.08 percent tax on workers’ wages.

At the national level, the Family and Medical Leave Act—enacted in 1992—allows workers up to 12 weeks of unpaid leave for illness or to care for a sick relative, a new baby or a newly adopted child. The Department of Labor seems poised to revise its FMLA regulations, though; it recently issued a request for comments amid complaints from businesses that employees are abusing FMLA.

For example, a comment letter from the HR Policy Association cited problems with the FMLA’s intermittent leave provisions, which let employees take leave in increments.

“Our members inform us that last-minute leave episodes consistently disrupt efficient business operations and cause related administrative problems,” the letter states. “In many cases, unpredictable absences occur on Mondays or Fridays and frequently involve employees that already have attendance problems, reinforcing the perception of abuse.”

But there are also efforts under way on Capitol Hill to provide paid leave. Sen. Edward Kennedy, D-Massachusetts, and Rep. Rosa DeLauro, D-Connecticut, have reintroduced the Healthy Families Act, which would require companies with more than 15 employees to provide seven days of paid sick leave a year. And Sen. Christopher Dodd, D-Connecticut, said in February that he plans to introduce a bill co-sponsored by Sen. Ted Stevens, R-Alaska, to provide six weeks of paid leave and expand the number of employees eligible for FMLA. The chances for federal legislation look better now that Democrats are in control of Congress.

Filed by Susan Kelly of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

A Florida bill that would have allowed employees to keep guns locked in their cars on company grounds may be dead for now, but observers say it will be back next year.

A Florida House committee version of the bill, which is sponsored by the National Rifle Association, was defeated in a 10-4 vote April 18, just two days after the shooting rampage at Virginia Tech that left 33 dead. A Senate version of the bill died on May 4 because of the House defeat.

But observers expect the National Rifle Association to bring up the bill again next year, which would mark the third time the Florida Legislature would vote on the bill.

“I have no doubt that the NRA will not give up the fight quickly or easily,” says Brian Siebel, a senior attorney at the Brady Campaign to Prevent Gun Violence. “And if it does, the business community will come out even stronger against it.”

The bill has been a point of contention between business groups, the NRA and the Florida AFL-CIO, which came out in support of the bill in March.

“Our support never had anything to do with guns,” AFL-CIO spokesman Rich Templin says. “This is about protecting workers’ rights. When you drive to work, your car still belongs to you. Your privacy doesn’t end when you get to work.”

—Jessica Marquez

Rumors may be circulating about a takeover deal, but Monster Worldwide seems to be focused on its strategic vision of extending market reach by aligning itself with diverse media outlets.

This time, the job board is joining forces with Community Newspaper Holdings Inc., parent company of 93 daily newspapers. Monster and the Birmingham, Alabama-based company will be launching 80 co-branded career and recruitment sites that will be rolled out in the coming weeks.

“Monster’s alliance with CNHI helps make it easier than ever for local employers and job seekers in smaller markets to tap into Monster’s capabilities,” Monster North America president Doug Klinger said in a release. “This agreement builds upon Monster’s strategy of leveraging local media alliances to create new points of distribution for our services and strengthens our brand relevance among small to medium-sized businesses.”

Monster’s first inter-media alliance came in July 2006, when it joined forces with Philadelphia Media Holdings. Since that time, Monster has forged agreements with media companies representing more than 200 news publications and eight television properties. These alliances reach a daily circulation of about 7 million readers. Monster’s relationship with Community Newspaper Holdings will allow it to reach more than 1 million additional subscribers.

For its part, Community Newspaper Holdings will also derive certain benefits.

“The alliance with Monster will allow us to give recruitment advertisers and job seekers access to cutting-edge technology,” said Donna Barrett, president and CEO of Community Newspaper Holdings. “Employers already count on us to connect them with the most qualified employees in our communities, and Monster’s mastery of the online recruitment market will help us expand that relationship with our advertisers and readers.”

The announcement of the alliance coincides with the first day of Monster’s Executive Customer Forum, being held in Boston from May 21 to 23. The theme of this year’s conference is “Growing Your Knowledge Network.” It remains to be seen whether Monster will unveil any additional news.

Gina Ruiz