ADP Fires First Salvo In Battle With Ackman -- WSJ

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08/05/2017 | 08:48 am
William Ackman

By David Benoit

This article is being republished as part of our daily reproduction of articles that also appeared in the U.S. print edition of The Wall Street Journal (August 5, 2017).

Automatic Data Processing Inc. fired an unusual broadside against activist investor William Ackman Friday, taking the first strike in what is shaping up to be a nasty fight over the human-resources software giant's leadership.

ADP said early Friday that Mr. Ackman had taken a stake in the company and revealed he was seeking to throw out half the company's board and replace Chief Executive Carlos Rodriguez.

The surprise statement was released ahead of Mr. Ackman's own disclosures. Such a pre-emptive move against an activist is rare for companies as big as Roseland, N.J.-based ADP, which has a $50 billion market value. It highlights how quickly tensions can ramp up when an activist seeks a CEO change -- something that is happening more often as the investors seek new ways to boost returns.

ADP said it had denied Mr. Ackman's "last minute" request to delay an Aug. 10 deadline for nominating directors so he could nominate his own slate. Mr. Ackman made the request Aug. 1, ADP said.

ADP defended Mr. Rodriguez and the board, and it took a swipe at Mr. Ackman's own investing performance, which has lagged behind the stock market the past two years.

Though Mr. Ackman had yet to officially disclose the investment, it was reported last week by Bloomberg.

ADP said Mr. Ackman informed it that his company, Pershing Square Capital Management LP, owns an 8% stake, much of it through derivatives. Mr. Ackman confirmed the stake in a statement later Friday, and said it was the firm's largest investment.

Pershing Square said it sees "enormous opportunity" to boost ADP's performance by increasing growth, improving its offerings and cutting costs. It added that it offered to work with ADP management or an outside CEO candidate. Pershing Square said it plans to launch a proxy fight for a "minority" slate of directors. For the board and Mr. Rodriguez, it promises to turn into a monthslong fight with an activist who isn't known for biting his tongue.

ADP said Mr. Ackman said he was seeking five seats, including one for himself, on the 10-person board. He met with Mr. Rodriguez and ADP Chairman John Jones Thursday and requested more time beyond the Aug. 10 deadline to discuss his nominations and a candidate for Mr. Rodriguez's job, according to Mr. Ackman and ADP. Mr. Ackman didn't tell them who his board or executive candidates were, though he described their résumés in broad strokes, people familiar with the meeting said.

His attempt to replace ADP board members and the CEO follows a similar successful move earlier this year at railroad CSX Corp. Paul Hilal, Mr. Ackman's former longtime lieutenant, teamed up with Hunter Harrison, then at Canadian Pacific Railway Ltd. The news that Mr. Harrison was seeking the CEO job at CSX sent the stock soaring. That smoothed the path to a settlement -- but in that case, CSX's CEO was already headed toward retirement.

Mr. Ackman said at the meeting that if ADP didn't extend the deadline, the fight would likely become public, the people said. Activists and companies often delay such deadlines to negotiate settlements privately -- a solution Mr. Ackman was seeking, one person said.

Mr. Ackman mentioned that he was headed on vacation later Thursday, the people said. ADP decided it wouldn't wait.

On Friday, ADP publicly rejected the extension request, suggesting it wasn't in shareholders' best interest to give Mr. Ackman more time to figure out how to gain control of the board at the annual meeting, which will likely take place in November.

ADP labeled it a "last minute" request to extend a deadline that has been in place for nearly a year. It also touted recent new additions to its board.

An 8% stake would amount to about $4 billion, a big bet for Pershing Square, which has struggled in recent years. Through July, its publicly traded fund has gained 0.9%, far behind the market rally of 2017. It is down more than 35% from a high in mid-2015. The firm managed about $10 billion in assets as of the end of July, about half of what it had two years ago.

Much of the decline is due to Pershing Square's $4 billion loss on Valeant Pharmaceuticals International Inc., which Mr. Ackman sold out of this year. He maintains large stakes in Mondelez International Inc. and won board seats at Chipotle Mexican Grill Inc. in December, which he got without a fight.

ADP drew a contrast with Mr. Rodriguez's six-year tenure. ADP shares returned about 164%, including dividends, from when Mr. Rodriguez took over and when Mr. Ackman's stake surfaced. That bested the 120% return of the S&P 500 over the same period. ADP said including a spinoff, the total return is 202%.

Mr. Ackman has notched some of his best historical investments by bringing in new leaders to shake up companies, such as Canadian Pacific and Air Products and Chemicals Inc. But he has also been burned by CEO changes, famously helping bring Ron Johnson to J.C. Penney Co., which subsequently floundered.

--Justina Vasquez contributed to this article.

Write to David Benoit at [email protected]

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