Bill Ackman Builds a Stake in Automatic Data Processing

Updated on
  • Pershing Square is said to already own shares, may buy more
  • ADP reported earnings Thursday that missed expectations

Billionaire investor Bill Ackman’s Pershing Square Capital Management has built a stake in business outsourcing company Automatic Data Processing Inc., according to people familiar with the matter.

Ackman has already bought shares in ADP and may acquire more through the new funds he filed documents for last week, the people said, asking not to be identified as the details aren’t public. Shares of the Roseland, New Jersey-based company rose as much as 13 percent to $120 Thursday, the biggest intraday move since 1987 to their highest-ever price.

The stock closed up 9.1 percent at $115.63 in New York, its largest one-day jump since 2008. The company has a market value of about $52 billion.

It’s unclear how big Pershing Square’s holding in ADP is or whether the fund plans to use its stake to push for changes at the company, which manages services including payroll, human resources and taxation for corporate clients. It also provides monthly U.S. employment data through its research institute.

An ADP spokesman declined to comment on the matter.

ADP reported fiscal fourth-quarter earnings Thursday that fell short of estimates. The company said it made adjusted net earnings from continuing operations of $292.9 million, or 66 cents per adjusted share. Analysts had been expecting 67 cents a share on average.

Pershing Square previously owned shares in ADP from 2009 to 2011, according to data compiled by Bloomberg.

The last time Ackman invested in ADP he agitated for changes including spinning off non-core assets and rationalizing the balance sheet, Mark Marcon, an analyst at Robert W Baird & Co., wrote in a note to clients. ADP later spun out its dealers-services business, CDK Global, transferring debt to CDK with proceeds used to buy back shares. It also took on additional debt for the same purpose, he said.

“Anticipate a renewal of the play book -- more leverage and shorter term cost focus (at the expense of the long term),” Marcon wrote. “At the current price, shareholder value enhancement from buybacks would likely be modest.”

A representative for Pershing Square declined to comment.

Mixed Results

Pershing Square typically buys large stakes in a handful of big companies and agitates executives and directors to make changes to boost shareholder returns.

Results have been mixed. Ackman’s firm exited a high-profile investment in Valeant Pharmaceuticals International Inc. in March that cost $4 billion. He referred to the effort at the controversial drugmaker as a “huge mistake.” Last year, it exited entire long-time investment in Canadian Pacific Railway Ltd. after making about $2.6 billion.

The New York-based investment also firm sold off about a quarter of its stake in fast-food chain holding company Restaurant Brands International Inc. on July 12 after shares in the owner of Burger King and Tim Hortons rose 39 percent over the previous year, a person familiar with the matter said this month.

It also owns positions in snack maker Mondelez International Inc., burrito chain Chipotle Mexican Grill Inc., industrial gas distributor Air Products & Chemicals Inc. and chemical maker Platform Specialty Products Corp.

— With assistance by Joshua Fineman

(Updates with ADP comment in fifth paragraph.)
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