Ackman: ADP Stock Could Double In Five Years If Transformation Plan Implemented

Aug 17 2017 | 10:25pm ET

Bill Ackman’s activist hedge fund Pershing Square held a conference call on Thursday in which he detailed the reasoning behind his ambitious decision to target payroll processing behemoth Automatic Data Processing, declaring the company’s stock could double in the next five years if a series of changes are instituted now.

Pershing Square, which launched its activist campaign against ADP in early August, owns some 8.3% of ADP and nominated three executives – including Ackman – to the company’s board on August 8 after being rebuffed in efforts to delay the nomination deadline. The proxy contest has become increasingly heated as details of the interactions between Ackman and ADP CEO Carlos Rodriguez have become public, replete with cringeworthly details about an email from Rodriguez originally intended for ADP’s general counsel but allegedly misforwarded to the activist investor himself.

Among Ackman’s suggestions for ADP during the 3.5-hour conference call: Cut costs, streamline business units and invest in technology. Despite stressing last week that he was willing to work with Rodriquez to implement shareholder-friendly changes at the company, Ackman added that “only the CEO can fix this” and suggested Rodriguez is not the right executive to do it. With total shareholder return of 202% in the last six years, well in excess of the S&P 500’s gain of 128% over the same period, investors and analysts alike have been looking forward to Ackman's explanation about just what needs fixing.

Most of Ackman’s operational suggestions are straight from the activist playbook: cut staff, innovate, integrate acquisitions more effectively, and potentially sell off real estate as part of efforts to consolidate real estate holdings, according to a Reuters article detailing the Pershing call. 

ADP is operating at vastly lower margins than those enjoyed by smaller rivals such as Paychex and Workday, Ackman added, and with some changes, could see its stock double in five years even without other typical activist tools such as dividend increases or large changes to capital structure. 

Investors, which have been waiting for details on Pershing Square’s investment case, were not that impressed; ADP shares fell more than 5.7% on Thursday to under $105. For its part, ADP noted in a statement that Ackman has not yet brought any issue to light not previously studied by ADP’s leadership.

ADP has hired Morgan Stanley, Goldman Sachs and Paul, Weiss for advice in handling the activist effort, Reuters reported. The company’s annual meeting is scheduled for early November. 


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