How Bill Ackman's battle with ADP differs from his other activist campaigns

Bill Ackman, the founder of $11 billion Pershing Square Capital, is known for doing massive amounts of research and then delivering lengthy, detailed presentations meant for analysts and institutional investors. It’s how the veteran activist investor gets his message across when he wants a company to make changes.

Automatic Data Processing (ADP), Ackman’s latest target, is a bit different.

“Individual investors are major shareholders of ADP,” Ackman told Yahoo Finance. “So, unlike a typical company where the institutions own a huge percentage of the outstanding shares, in this case, 28% of the stock is held by so-called mom-and-pop retail or individual investors. Again, there are a lot of sophisticated retail investors.”

To cater to these folks, Ackman will host his first-ever live webcast with retail investors on Tuesday at 7 p.m. ET, and is inviting retail investors to ask him questions about ADP.

The retail investing community could ultimately decide who wins the proxy contest.

Bill Ackman, founder & CEO at Pershing Square Capital Management sees room for improvement at ADP.

Ackman, whose hedge fund owns 8.3% of ADP, a position valued at about $4 billion, is running a proxy contest to put three nominees, including himself, on ADP’s board. He contends that this is a company that’s a “great business” that has “vastly underperformed its potential.”

“Wow, this doesn’t make a lot sense”

“We look for situations where a great business has fallen and missed opportunities, and this is really one of them,” Ackman said.

One thing that stood out to the Pershing Square team was how the company compares to Paychex (PAYX), a competitor in the human capital management (HCM) business.

“If you look at Paychex, over the last six years, Paychex has gotten more and more profitable and productive,” Ackman said. “Their margins are up to 41% versus ADP’s on a like for like basis — ADP’s core employer services business is at a 19% margin — so basically less than half a direct competitor for a big part of ADP’s business. And we said, ‘Wow, this doesn’t make lot of sense.'”

He also called ADP “one of the least efficient big companies.” That said, he sees an opportunity to run the business much more effectively and efficiently.

“I didn’t take it personally”

ADP has pushed back on Ackman and Pershing Square’s ideas. Company management recently characterized Pershing Square’s views as “extreme and ever-changing” and said that they “would put the business at risk.”

In a recent interview with CNBC, ADP CEO Carlos Rodriguez went as far as to call Ackman a “spoiled brat.

“I didn’t take it personally,” Ackman told Yahoo Finance.

Ackman is concerned because Rodriguez seems to be “in a very comfortable position” and that one of the major issues at ADP is “complacency.”

“The notion that someone from the outside comes in and all the sudden even questions the idea that he might not be the right person running the company, and whether or not he’s the right person is a function of whether he buys into the opportunity,” Ackman said.

“If the company indeed says there’s no opportunity for improvement and then we join the board and the board does a study and concludes there is a huge opportunity for improvement, if the CEO is not on board to make the necessary changes to get there, then he’s the wrong person,” he continued. “If, in fact, he gets inspired by a mandate from shareholders for change, and he wants to lead the changes in the business, then he could very well be a superb person to execute.”

What if the vote doesn’t go Ackman’s way?

If next month’s proxy vote doesn’t go in his favor, Ackman plans to remain a long-term shareholder, and he won’t be backing down either.

“One of the things that CEOs make the mistake of — they think they win the proxy contest and the war’s over,” Ackman said. “The reality is that we’re still there. We are still major shareholder company. We’re not in the boardroom. We’re not subject to any of the confidentiality stipulations that directors are. We are free to speak our mind, and we’re going to be very tenacious.”

For example, when the company announces earnings, Ackman says he may host a separate earnings call to talk about the issues and opportunities.

“That puts a fair amount of pressure on the company to perform,” he added. “I think the only way we don’t get a director on this board is if the company basically commits to shareholders they’re going to make more progress than expected. If that progress is not forthcoming, 12 months from now or probably 11 months from now, we launch another proxy contest, and we’re going to have a lot, maybe we get more directors a year from now if the company underperforms.”


Julia La Roche is a finance reporter at Yahoo FinanceFollow her on Twitter.

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