Activist William Ackman Loses Bid for ADP Board Seats--4th Update

By David Benoit Features Dow Jones Newswires

ROSELAND, N.J. -- William Ackman lost his bid for three seats on the board of Automatic Data Processing Inc., the latest blow to the struggling activist investor as shareholders sided instead with management at the human-resources software company.

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ADP investors on Tuesday re-elected the entire 10-person board at the annual meeting at its Roseland, N.J., headquarters. Mr. Ackman and his two nominees received support from holders of less than 20% of ADP's shares and less than 25% of the shares that were voted at the meeting, ADP said.

"We came in peace," Mr. Ackman said after his defeat at the meeting. "The point I would like to make is we believe it's a very significant amount of shareholder support."

But ADP Chief Executive Carlos Rodriguez disagreed, closing the meeting with a parting shot from the stage:

"Bill...despite your characterization of the result as close, what I was told was this was an 'ass-whooping,'" he said.

For Mr. Ackman, Tuesday's loss raises new questions about his ability to win support during a period of turmoil for his fund, which has struggled of late and suffered a $4 billion loss after a bad bet on Valeant Pharmaceuticals International Inc. Still, activist fights are typically decided based on the issue on the table, rather than the investor's recent performance.

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Mr. Ackman's Pershing Square Capital Management LP has underperformed for nearly three years, largely because of the bruising loss on Valeant. Its main fund has lost 24% since 2014, compared with a one-third climb in the S&P 500. The fund is roughly flat this year through October, while the S&P 500 rose 17%, including dividends.

Mr. Ackman points instead to his long-term track record, saying Pershing Square has returned more than 500% since its January 2004 start, compared with the S&P 500's roughly 200%.

The ADP fight had been a heated one between Mr. Ackman, one of Wall Street's most powerful and polarizing investors, and Mr. Rodriguez. Mr. Ackman had said the company fell behind technology-heavy startups and needed to improve its margins. Mr. Rodriguez countered that ADP was already improving technology and was on a path to improve its margins.

"I want to thank the shareholders for this vote of confidence," Mr. Rodriguez said at the meeting.

Even Mr. Ackman's efforts to address the meeting didn't go smoothly. He sat in the middle of the pack in the meeting in the basement at ADP's headquarters and was offered a chance to comment toward the start of the meeting. He stood up and said he had hoped to speak at the end instead. He was told no. He said he was "delighted to be here" and sat down.

At the end of the meeting, the sides quickly debated before he was given a chance to speak, with Mr. Rodriguez winning a laugh by forcing Mr. Ackman to form his remark as a question in order to follow meeting procedures.

Big investors Vanguard Group and State Street Global Advisors voted in favor of ADP, while BlackRock Inc. voted its shares in favor of Mr. Ackman, a key vote of confidence for him, according to people familiar with the matter. Several investors, including one in the top 10, had told The Wall Street Journal that they believed ADP needed to improve but also trusted management and Mr. Rodriguez to execute.

ADP's stock had performed well compared with the S&P 500, and some had questioned why Mr. Ackman had sought to target it in the first place. On Tuesday, even amid the storm, ADP raised its quarterly dividend to 63 cents from 57 cents.

ADP shares slid 1.2% to $109.95 in morning trading.

Mr. Ackman has argued in recent days that he already had pushed ADP to promise to improve operations and margins. Mr. Ackman has said he intends to stay in the stock and believes the proxy fight, win or lose, would create a path for ADP to improve in the coming year or risk putting him on the board in 2018. He said he would be judged as an investor on the stock performance, not whether he was elected or not.

Mr. Rodriguez had attacked Mr. Ackman from the outset of the fight, at one point even calling him a "spoiled brat" on television, and he sought to discredit Mr. Ackman because of his performance. ADP said it would complain to the Securities and Exchange Commission over some of Mr. Ackman's accusations.

In turn, the activist had accused Mr. Rodriguez of misstating private conversations about his requests and misleading investors about what was happening.

Institutional Shareholder Services Inc., the biggest proxy adviser, had suggested Mr. Ackman made valid points and supported his election to the board. But instead of suggesting investors vote directly for Mr. Ackman, ISS instead called for them to withhold their votes from a sitting ADP director, opening a spot for Mr. Ackman. ISS said electing Mr. Ackman's three nominees would introduce too much risk, so it chose that unusual tactic.

Because most investors can only vote on one ballot or the other, that opinion was a blow to Mr. Ackman because following ISS's recommendation would lead investors to cast their ballots on management's card. Mr. Ackman's election would only happen if more investors turned in an affirmative vote for him than those who withheld.

Write to David Benoit at david.benoit@wsj.com

ROSELAND, N.J. -- William Ackman lost his bid for three seats on the board of Automatic Data Processing Inc., a resounding rebuke of the struggling activist investor as shareholders sided with management at the human-resources software company.

ADP investors on Tuesday re-elected the entire 10-person board at its annual meeting, capping a battle between management and Mr. Ackman that was particularly acrimonious and colorful -- even by typical proxy-fight standards.

Mr. Ackman, who according to ADP won less than 25% of the shares that were voted, said he got "a very significant amount of shareholder support." But ADP Chief Executive Carlos Rodriguez disagreed, closing the meeting with a parting shot from the stage.

"Bill...despite your characterization of the result as close, what I was told was this was an 'ass-whooping,'" he said.

The fight between Mr. Ackman and ADP was nasty from the very start. ADP in August announced Mr. Ackman's Pershing Square Capital Management LP had built a stake, a release that pre-empted the activist investor's own disclosures. And it rejected his initial demands on a morning Mr. Ackman said he was headed for vacation. Mr. Rodriguez, in a TV interview later in August, called him a "spoiled brat."

The barbs continued from there, all the way through Tuesday. In an interview after the vote, Mr. Rodriguez stayed on the offensive. He admitted he had lost his cool with his closing comment, but he said Mr. Ackman's campaign had been insulting to his employees and he rejected the idea that management was under any more pressure than normal.

"Frankly, what Pershing Square and Bill Ackman have to say are a very small part of the pressure on my day-to-day life," Mr. Rodriguez said. "Yes, this battle's over. We won."

Mr. Ackman said it wasn't over and that the CEO's comment wasn't respectful of shareholders of ADP, a $50 billion company that helps businesses handle repetitive HR functions like payroll and timekeeping.

"We are going to hold them accountable," Mr. Ackman said, raising the likelihood of further tension, particularly if ADP slips at all with the promises it made. "We are rooting for ADP."

He said he would be judged as an investor on the stock performance, not on whether he won this proxy fight. Pershing Square holds about 2% of the common stock and derivatives that would bring the stake to about 8%.

Still, for Mr. Ackman, the magnitude of Tuesday's loss raises new questions about his ability to win support during a period of turmoil for his fund, which has struggled in recent years and suffered a $4 billion loss after a bad bet on Valeant Pharmaceuticals International Inc.

Mr. Ackman's Pershing Square has underperformed for nearly three years, largely because of the bruising loss on Valeant. Its main fund has lost 24% since 2014, compared with a one-third climb in the S&P 500. The fund is roughly flat this year through October, while the S&P 500 rose 17%, including dividends. He also recently restructured his five-year bet against Herbalife Ltd., limiting potential losses as his position had continued to lose money.

Mr. Ackman points instead to his long-term record, saying Pershing Square has returned more than 500% since its January 2004 start, compared with the S&P 500's roughly 200%.

In Tuesday's vote, large ADP shareholders Vanguard Group and State Street Global Advisors threw their weight behind the company, according to people familiar with the matter. But BlackRock Inc., ADP's second-biggest investor, voted its shares in favor of Mr. Ackman, a key vote of confidence for him, the people said.

Mr. Ackman's defeat Tuesday was worse than in a typical proxy fight where the activist lost, according to Proxy Insight. The margin between Mr. Ackman and the closest ADP director was greater than 30 percentage points, compared with an average management win of 23 percentage points in six similar votes this year.

ADP is the third major company this year to beat back an activist, along with General Motors Co. and Procter & Gamble Co., although P&G's result last month was so close that it is in dispute. While activists have continued to shake up corporate giants through brokered settlements, the companies have won high-profile fights at the polls, reaffirming to some that a firm whose stock hasn't plunged and which has a set plan to improve can win some time with shareholders.

In the ADP fight, Mr. Ackman had said the company fell behind technology-heavy startups and needed to improve its margins. Mr. Rodriguez countered that ADP was already improving technology and was on a path to increase margins.

From the start, ADP sought to put Mr. Ackman on the defensive, with advisers and Mr. Rodriguez confident its past performance and narrative would deflect a shareholder he called "the loudest voice in the room."

ADP's stock has performed well compared with the S&P 500 during Mr. Rodriguez's tenure and rose 1.3% to $112.75 Tuesday.

The two sides even argued about the final tally of votes, a dispute that echoed several earlier dust-ups the companies had over numbers. Mr. Ackman said the tally was closer than it appeared, citing that he won about 81 million votes while ADP director Eric Fast, who received the lowest tally among sitting board members, had gotten about 183 million. If the contest was just between those two, Mr. Ackman said, he would only have lost 69% to 31%. A total of about 326 million shares were cast in the election.

Even Mr. Ackman's efforts to address the meeting didn't go smoothly. He sat in the middle of the pack in the meeting in the basement at ADP's headquarters and was offered a chance to comment toward the start of the meeting. He stood up and said he had hoped to speak at the end instead. He was told no. He said he was "delighted to be here" and sat down.

At the end of the meeting, the sides quickly debated before he was given a chance to speak, with Mr. Rodriguez winning a laugh by forcing Mr. Ackman to form his remark as a question in order to follow meeting procedures.

Write to David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

November 07, 2017 19:36 ET (00:36 GMT)