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Ackman on comeback trail takes aim at ADP, gets instant pushback

August 4, 2017 GMT

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.

Ackman, 51, could use some good news. He exited a high-profile investment in Valeant Pharmaceuticals International in March that cost the firm $4 billion, while a stake in Chipotle Mexican Grill, 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.

Pershing Square wants five seats on ADP’s 10-member board at its annual meeting this year and is pushing for CEO Carlos Rodriguez to be replaced, ADP said in a statement Friday. The billionaire activist has also asked ADP to extend its deadline for director nominations, which the company’s board has rejected.

“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.

A representative for Pershing Square declined to comment. The investment firm has not yet disclosed its holding in ADP. Friday’s statement comes after Bloomberg first reported last week that Ackman had built a stake in the firm.

New York-based 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. After spending the better part of two years trying to convince just about anyone his investment in Valeant was a good one, Ackman more recently 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 long-time 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.

Ackman first contacted ADP on Aug. 1 and said his firm owned 8 percent of the company’s shares, largely in derivatives, according to the statement. 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, the statement claimed.

“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, who has a market perform rating on the shares, wrote in a note to clients.

ADP shares were little changed in New York trading at 11:15 a.m. The stock is up about 8.2 percent this year, valuing the company at $49.8 billion. ADP manages services including payroll, human resources and taxation for corporate clients. It also provides monthly U.S. employment data through its research institute.

The company said last month that it’s anticipating revenue growth of 5 percent to 6 percent in 2018 and adjusted earnings per share to rise 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. The last time Ackman invested in ADP he agitated for changes including spinning off non-core assets and rationalizing the balance sheet.