Embattled billionaire activist Bill Ackman vowed to launch another director battle next year at Automatic Data Processing Inc. (ADP) if the payroll processor doesn't meet its commitments to shareholders.

The insurgent investor made the comments to TheStreet shortly after he lost a hard-fought boardroom battle seeking three seats on ADP's 10-person board in a months-long contest that came to a conclusion Tuesday, Nov. 7.

"We received a resounding vote of support from a large minority of shareholders and other big investors said they would support us next year if ADP doesn't meet its performance goals," Ackman said in an interview. "Shareholders completely understood the issues. Shareholders agree that they need to be more profitable."

In his campaign, Ackman argued that the payroll processor's board's problems, from a share-price performance perspective, lay ahead of it. But investors weren't interested or simply couldn't wrap their head around his argument. According to ADP, Ackman and his two other candidates received support from holders of less than 25% of the shares voted at the meeting. According to a person familiar with the situation, 81 million shares voted for Ackman out of a total of 325 million shares that participated in the election. About 73% of outstanding shares participated, he added. 

However, Ackman disputed that number, saying he received 31% of the votes cast. In addition, about 14% of shares voted to "withhold" their vote for ADP director Eric Fast, based partly on a recommendation made by influential investor advisory firm Institutional Shareholder Services Inc.

Bill Ackman.
Bill Ackman.

Ackman argued that to get a true understanding of the vote of support he received one should combine the Fast withhold votes with the votes that backed his candidacy. With that logic, Ackman argued, about 45% of voting shares supported his effort. Ackman said that is a strong suggestion that a big cross-section of investors backed his candidacy and that he may have been elected had ADP agreed to set up a so-called universal proxy card system, giving investors more flexibility to pick and choose who they support.

However, had those Fast withholding shareholders really supported Ackman and his two other candidates they would have voted for Ackman on his gold proxy card. 

In addition, Ackman argued that ADP was able to win the contest and get the support of ISS by making a number of important commitments to shareholders, including the payroll processor's forecast that it will increase operational profit by 500-600 basis points over the next three fiscal years.

Even though Ackman lost the boardroom battle, he still may do well on his investment. ADP's shares are still well above Ackman's cost basis of roughly $104 a share. ADP's shares spiked up significantly in late July after the first reports that Ackman had a campaign underway at ADP.

Ackman's firm, Pershing Square Capital Management LP, bought its initial 8.3% stake between June 8 and Aug. 4 at prices ranging from $100.53 a share and $118.13 a share.

Not many funds publicly release their voting tallies. However, TheStreet learned that index fund Vanguard, the largest ADP owner, voted against Ackman, a major blow considering that its support could have propelled Ackman's campaign. Vanguard owns 8% of ADP's outstanding shares but its vote would have represented a higher percentage of voting shares, perhaps as much as 12% since many investors didn't participate.

Also, the California Public Employees Retirement System, which opposed Nelson Peltz's effort to gain a seat on Procter & Gamble Co.'s (PG) board, reported Tuesday that it had voted its 0.24% stake against Ackman's candidates. The Ontario Teachers' Pension Plan, however, said it voted its small stake for the dissidents.

It's possible Ackman could succeed at driving big changes if he continues to put the pressure on ADP. Consider that activist Peltz threatened to launch another director battle at DuPont (DD) in 2016 after he narrowly lost a boardroom fight with the chemical giant in 2015. In the months following his defeat, DuPont stock price dropped, and it subsequently replaced its CEO, Ellen Kullman. With Peltz hovering, DuPont later agreed to combined with Dow Chemcial in a $150 billion merger, which will break up into three companies in the months to come. 

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