In response to an aggressive dissent from its largest shareholder, the board of
on Wednesday said that it would consider alternatives to a buyout that it accepted last month.
The board of the human resources outsourcing company scrambled to respond to
a letter that its largest shareholder, hedge fund Pershing Square Capital, filed with the
Securities and Exchange Commission
In the letter, addressed to Ceridian shareholders, Pershing's lead portfolio manager William Ackman asked shareholders to reject the offer of $36 a share, or roughly $5.3 billion, from Thomas H. Lee Partners and
Fidelity National Financial
as too low.
Instead, Ackman advocates breaking up the company and selling the parts individually, selling the entire company at a higher price or choosing a "recapitalization," which generally refers to taking on debt to issue a special dividend or repurchase shares.
"The board welcomes involvement by shareholders and is prepared to review any proposals that might result in a superior proposal per the merger agreement," Minneapolis-based Ceridian said in a statement.
A Ceridian representative would not say whether the board's openness to any proposals includes Ackman's suggestions, but said the board would "do what's right for shareholders."
Pershing, which holds nearly 15% of Ceridian's shares, has hired the investment bank Lazard Freres to discuss alternatives to the bid on the table. Pershing also indicated that it has begun negotiating with alternative buyers and banks that would provide the hedge fund with financing.
These are particularly aggressive steps for a shareholder, and go beyond Pershing's current proxy battle to replace directors on Ceridian's board with its own representatives.
Ackman has also pushed Ceridian's management and board to sell its payment processing subsidiary, Comdata. In January, he also held discussions with Comdata's president, Gary Krow, about
rallying other investors behind a spinoff, according to a lawsuit filed by Pershing.
Ceridian fired Krow in May for talking to Pershing without getting approval from management or the board.
Ceridian has been working with the investment bank Greenhill & Co. to review "strategic alternatives." Some analysts saw that as an indication that the company would consider spinning off Comdata.
But a source close to the review said that a spinoff wouldn't be successful because Comdata's middling growth rate wouldn't attract strong interest from institutional investors.
Also, a recapitalization would be too risky because an economywide slowdown in hiring could affect Ceridian's core business and hinder its ability to make fixed debt payments.
A much better alternative for shareholders, according to this source, is to sell the company for a firm cash offer.
On May 30, Ceridian announced that it would accept a buyout proposal from THL Partners and Fidelity National Financial. The company has said shareholders will have the opportunity to vote on the deal during its annual shareholder meeting, which will take place no later than Sept. 21, according to an SEC filing.
A source close to one of the buyers said there are no current plans to raise the initial offer.
Shares of Ceridian were up 23 cents to $35.44 midday.