Ackman's Pershing Square Said To Take Stake In ADP

Jul 28 2017 | 5:37pm ET

Bill Ackman’s Pershing Square Capital Management is reportedly taking a large position in payroll and benefits giant Automatic Data Processing, sending the company’s stock to a record high. 

The activist investor has been quietly building a position for some time, according to a Reuters article citing two unidentified individuals familiar with the matter. Since early this year, Ackman has cryptically referred to two new portfolio positions that have been working out very well, and signaled in early May that an unidentified new position in the fund accounted for approximately 5% of its capital.

Ackman has also hinted at plans to make a new bet over the past several weeks, the Reuters article continued, describing the new target as a classic candidate boasting a simple business model, high predictability and strong cash flow – all attributes applicable to ADP. 

As is often the case when activist activity in a stock is unveiled, ADP’s share price has soared on the news. It has risen from $103 at the start of the week to $117 at Friday’s close as investors bet on Ackman’s ability, despite his well-publicized $4 billion misstep with Canadian pharmaceuticals company Valeant, to increase shareholder value at ADP. 

Moreover, Ackman and his team at Pershing Square know ADP well, having owned it between 2009 and 2011. The choice also makes sense in light of Ackman’s desire, expressed in an investor letter following the Valeant loss, to return his fund to “the basics.”

The size of Pershing’s stake has not yet been reported, but it is likely to be material. Ackman typically takes sizeable positions in large-cap firms and then begins pushing them to address concerns or take shareholder-friendly steps like dividends, asset sales or buybacks. 

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