PeopleSupport rejects $340M offer

Outsourcing firm PeopleSupport Inc. has rejected a $340 million offer to acquire the company, saying the best way for it to enhance shareholder value is by continuing its strategic plan.

In a statement late Wednesday, PeopleSupport said the $15 per share offer price from Philippine outsourcing firm IPVG Corp. and Asian private equity firm American Orient Capital Partners Ltd. is "inadequate and fails to take into account PeopleSupport's strategic value and success in implementing its growth strategy."

Officials at Manila-based IPVG could not be reached for comment. PeopleSupport representatives declined additional comment.

Sam Saunders, an analyst with Susquehanna Financial Group, said he was not surprised the offer was rejected.

"I thought $15 was kind of a lowball offer," Saunders said. "The premium seemed kind of low to us."

The guidance for 2008 revenue and earnings provided by PeopleSupport Wednesday seems to back up the company's decision.

PeopleSupport said revenues for 2008 would be between $180 million and $190 million, slightly higher than prior Street estimates of $170 million. The company's earnings per share guidance of between 65 cents and 81 cents was significantly better than the 57-cent consensus Street estimate.

Saunders said offshore competitors of PeopleSupport are trading at roughly 2 to 3 times forward sales, which would translate to a valuation of around $462 million based on the midway point of the company's 2008 revenue estimates. Based on the company's earnings guidance, PeopleSupport would be valued around $18 a share, or $405 million, he said.

It is unclear whether IPGV will increase its offer.

"Does IPGV have more tinder in the box?" Saunders said. "I can't really say, but they're pretty familiar with the business, so I would assume management knows what the market multiples for these things are."

Though based in Los Angeles, PeopleSupport's largest operations are in the Philippines, where it employs 8,400 of its 9,000 workers who perform a variety of customer management services for businesses.

PeopleSupport's largest shareholder, New York hedge fund Galleon Group LP, has pressed the company to conduct an auction to solicit other acquisition offers.

Galleon also has urged PeopleSupport to remove its poison pill so it could potentially participate in the takeover alongside IPVG.

Galleon, which owns 24% of PeopleSupport, did not respond to inquiries seeking comment.

Galleon also has objected to PeopleSupport's real estate exposure in the Philippines. In an attempt to address that concern, the company announced Wednesday it is pursuing a sale leaseback option with respect to land it owns in Manila.Credit Suisse Group is providing financial advice for PeopleSupport.