Bill Ackman earlier this month escalated his campaign to install three dissident directors onto Automatic Data Processing Inc.'s (ADP) board with a 167-page presentation and a three-hour-plus call with analysts and investors arguing that the payroll and human resource management company should cut staff, integrate operations and focus more on innovation and technology.
The market was either not impressed with Ackman or was discouraged by ADP's response, which was to reject everything the insurgent investor urged it to do. ADP's shares opened that day at $110.69 and closed at $104.68. Target company shares typically spike when a well-known successful activist launches a public campaign. On Aug. 4, the day Ackman was forced to take his insurgency public, the share price dropped to $111.39 a share, though the price was up slightly from $103 a share in late July prior to the first reports that a campaign was in the works. So far, Ackman's cost basis is roughly around ADP's trading price of $104.73 a share.
"Someone clearly did a lot of work on the company but it didn't seem like they had distilled things into an easy to grasp campaign," said Thomas Ball, managing director at proxy solicitor Morrow Sodali. "Pershing Square seemed to be saying that ADP should be more nimble. I didn't come away from that feeling like they had a focused campaign that was easy to grasp. I don't think people will want to spend the time doing the analysis, they rather would have something that is more easily digested."
The tepid share price performance so far is just the latest in yet another tough year - so far - for Ackman and his fund, Pershing Square Capital Management LP, which has faced major setbacks with investments and campaigns in Chipotle Mexican Grill Inc. (CMG) , Herbalife Ltd. (HLF) at the same time that ADP is battling him hard. The payroll and human resource management company came out swinging, pointing out that its performance is about seven times greater that Ackman's during its CEO's tenure. Ackman, for his part, could respond that his fund has had returns of over 500% over the life of his Pershing Square fund, from 2004 through December, according to a recent presentation. That's well above ADP's returns over that time period.
Morrow Sodali's Ball said he would feel comfortable defending ADP against Ackman because of the activist manager's blunders and poor performance in recent years. As a result, he doesn't believe that the payroll and human resource management company will feel compelled to reach a settlement with Pershing Square that puts Ackman on its board.
"It certainly looks like it's shaping up to be a bad year [For Ackman]," Ball said. "Pershing Square's performance and the missteps are all things that would make [ADP's] PR firm and proxy solicitation firm believe that they have a very good hand to play."
Consider that most well-known activists don't have other well-known insurgent managers coming out publicly against their thesis. However, Ackman now has had two public opponents against his campaigns. Billionaire raider-turned-activist Carl Icahn came out against Ackman's $1 billion short position insurgency at Herbalife. Icahn got five directors on the company's board and disputed Ackman's assertions that the nutritional supplements distributor was a Ponzi scheme.
Most recently, Herbalife reportedly held talks to go private. No deal emerged. Had one been consummated it would have been another major blow to Ackman who hopes Herbalife will one day trade much lower or perhaps even zero dollars a share. The failure to strike a deal could also be interpreted as a win for Ackman, as it may suggest a sale may never happen.
And at ADP, Ackman now faces Robert Chapman, a former prolific activist fund manager who was one of the early employers of the "poison pen" letter to CEOs. Chapman came out battling with a short-selling ADP campaign he described on CNBC TV the same day Ackman revealed his 167-page presentation for change.