ADP Resists Ackman's Plan to Take ‘Effective’ Board Control

  • Pershing Square confirms it has taken an 8 percent stake
  • Activist investor says he’s seeking minority slate at ADP

ADP Says Bill Ackman’s Pershing Seeks ‘Effective’ Board Control

Photographer: Michael Nagle/Bloomberg

Embattled activist investor Bill Ackman is on the comeback trail. It doesn’t look like he’s picked an easy target.

Automatic Data Processing Inc., the outsourcer that handles paychecks for 26 million Americans, is resisting Ackman’s Pershing Square Capital Management after saying the investor is seeking “effective” board control and lobbying to oust its chief executive officer.

Pershing Square confirmed it owns an 8 percent stake in the company in a statement Friday, but said it would only seek a minority slate after ADP refused to extend the deadline for nominations.

Ackman, 51, could use some good news. He exited a high-profile investment in Valeant Pharmaceuticals International Inc. in March that cost his firm $4 billion. Pershing Square’s stake in Chipotle Mexican Grill Inc., which has been hit by renewed food-safety concerns, is worth almost $190 million less than when he acquired it last year.

“ADP appears to be strongly pushing back against Pershing Square’s Bill Ackman, unlikely to accede to any corporate governance or financial/operational demands,” Wells Fargo & Co. analyst Richard Eskelsen wrote in a note to clients.

Bill Ackman

Photographer: David Paul Morris/Bloomberg

ADP said Pershing Square asked for five seats on ADP’s 10-member board at its annual meeting this year and was pushing for Carlos Rodriguez to be replaced as CEO in its own statement Friday. The board rejected both those requests as well as the request for an extension of the deadline to nominate directors.

“We believe our current board has an effective balance of leadership continuity and fresh perspectives that will help us to continue this strong track record of delivering value to shareholders,” ADP said.

Pershing Square said it met with Rodriguez and ADP Chairman John Jones on Thursday, to ask for the extension. Ackman also proposed several independent directors and a Pershing Square representative for the company’s board. The New York-based firm said it expressed a willingness to work with existing management or an external CEO candidate to push for changes.

“Pershing Square believes that there is an enormous opportunity to improve the operating performance of ADP by accelerating growth, improving the quality of ADP’s software and service offerings, dramatically reducing operating costs, and increasing efficiency,” the firm said.

Bloomberg reported last week that Ackman had built a stake in the firm.

Mixed Results

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

Results have been mixed. After spending the better part of two years trying to convince just about anyone his investment in Valeant was a good one, Ackman in March referred to the effort at the controversial drugmaker as a “huge mistake.”

Shares in Chipotle, on which Pershing Square spent about $1.17 billion last year, are down more than 17 percent since the stake was disclosed.

There have been successes too: Last year, Pershing Square exited a longtime investment in Canadian Pacific Railway Ltd. that made about $2.6 billion, and in July it sold part of its stake in fast-food chain holding company Restaurant Brands International Inc. after shares in the owner of Burger King and Tim Hortons rose 39 percent over the previous year.

$4 Billion Stake

Ackman first contacted ADP on Aug. 1, both sides said. With ADP’s market value touching $50 billion, that makes Pershing Square’s stake worth about $4 billion -- by far his biggest single holding, according to data compiled by Bloomberg.

Ackman met with ADP’s leadership this week and said he had a new CEO in mind, people familiar with the matter said. The talks focused on how to make ADP more nimble and quicker to adopt new technology, helping them compete with smaller competitors, the people said, asking not to be identified because the matter is private. The investor is also planning to push for margin improvements, but didn’t mention plans for a major financial overhaul, they said.

ADP defended Rodriguez in it statement and said investors have been rewarded with a total return of 202 percent -- assuming they reinvested dividends and held on to shares of a unit that was spun off -- during his nearly six years at the helm. Pershing Square’s return over the same period is 29 percent, according to the statement.

ADP shares were little changed in New York trading at 3:43 p.m. The stock is up about 8.9 percent this year. ADP manages services including payroll, human resources and taxation for corporate clients. It also provides monthly U.S. employment data through its research institute.

Previous Holding

The company said last month that it’s anticipating revenue growth of 5 percent to 6 percent in 2018, with adjusted earnings per share rising 2 percent to 4 percent. That compares to 6 percent sales growth for the fiscal year ended in June when the company reported $12.4 billion in sales.

It’s not the first time Pershing Square has pushed for changes at the company.

Ackman previously owned shares in ADP from 2009 to 2011, according to data compiled by Bloomberg. He agitated at the time for changes including spinning off non-core assets and rationalizing the balance sheet. ADP later spun out its dealers-services business, CDK Global, transferring debt to CDK with proceeds used to buy back shares. 

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