ADP Defends CEO, Board in Swipe at Activist Investor Ackman--2nd Update

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Automatic Data Processing Inc. has rejected a request from Bill Ackman's Pershing Square Capital Management LP to take half of its board seats, in the latest of recent examples of activist investors looking to force changes at companies.

Shares of ADP are up 2.9% at $115 in premarket trading Friday.

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ADP said the New York-based hedge fund had asked earlier this week to extend the Aug. 10 deadline to nominate directors to its board by 30 to 45 days. With the extension, Mr. Ackman would nominate himself and four other directors to the 10-person board. The request noted that ADP Chief Executive Carlos Rodriguez "should be replaced," citing company overvaluation, the company said.

The Roseland, N.J., human-resources software company said its board unanimously rejected the "last-minute" request, as the deadline for board nominees has been public for nearly a year. Mr. Ackman told the company that he has an 8% stake in ADP, largely through derivatives.

Activists and companies often extend a nomination deadline in order to negotiate changes privately without needing to launch a public shareholder fight.

"We believe our current board has an effective balance of leadership continuity and fresh perspectives" that will help continue delivering value to shareholders, the company said in a statement.

Automatic Data Processing Inc. launched a broadside against William Ackman on Friday in what is shaping up to be a nasty fight over the human-resource software giant's leadership.

In an unusual move, ADP pre-empted Mr. Ackman Friday morning and said the shareholder activist is seeking to throw out half of its board and replace Chief Executive Carlos Rodriguez.

In a statement, ADP chastised Mr. Ackman for seeking a delay in its director-nomination deadline. It defended Mr. Rodriguez and the board and took a swipe at Mr. Ackman's own investing performance, which has lagged.

Mr. Ackman has yet to officially disclose the investment, though it was reported last week by Bloomberg. ADP said he informed the company he owns an 8% stake, much of it through derivatives.

A pre-emptive strike against an activist is rare for companies -- especially ones as big as Roseland, N.J.-based ADP, which has a $50 billion market value. ADP's move highlights how quickly tension can ramp up when an activist seeks a CEO change, something that is happening more often as the investors seek new ways to boost returns.

The likely result is a monthslong shareholder fight over the board and Mr. Rodriguez, with an activist who isn't known for biting his tongue.

Mr. Ackman is seeking five seats, including one for himself, on the 10-person board, ADP said.

He met with Mr. Rodriguez and ADP Chairman John Jones on Thursday and requested more time beyond the Aug. 10 deadline to discuss his nominations and a candidate for Mr. Rodriguez's job, according to ADP's statement and people familiar with the meeting. The activist didn't share who his board or executive candidates were, though he described their résumés in broad strokes, the people said.

Mr. Ackman said if the company didn't extend the deadline, the fight would likely become public, the people said. Activists and companies often delay such deadlines to negotiate peaceful settlements privately, which Mr. Ackman was seeking, one person said.

Mr. Ackman added in the meeting that he was headed on vacation later Thursday, the people said.

ADP decided it wouldn't wait. It publicly rejected the extension Friday, suggesting it wasn't in the best interest of shareholders to allow Mr. Ackman more time to figure out how to gain control of the board at an annual meeting that will likely take place in November. It labeled it a "last-minute" request to extend a deadline that has been in place for nearly a year. It also touted recent new additions to its board.

An 8% stake would amount to about $4 billion and make it one of the biggest current bets for Mr. Ackman's Pershing Square Capital Management LP, which has struggled in recent years. Through July, its publicly traded fund has gained up 0.9%, severely lagging behind the big market rally of 2017. It's down more than 35% from a high in the middle of 2015. The firm managed about $10 billion in assets as of the end of July, about half what it had two years ago.

Much of the decline is due to the $4 billion loss Pershing Square suffered on Valeant Pharmaceuticals International Inc., which Mr. Ackman sold out of this year. He maintains large stakes in Mondelez International Inc. and won board seats at Chipotle Mexican Grill Inc. in December, which came without a fight.

ADP drew a contrast with Mr. Rodriguez's six-year tenure. ADP shares returned about 164%, including dividends, between the time he took over and when Mr. Ackman's stake surfaced, besting the 120% return of the S&P 500 over the same period. Including a spin-off, the company said the total return is 202%.

Mr. Ackman has notched some of his best historical investments when he brought in new leaders to shake up companies, such as Canadian Pacific Railway Ltd. and Air Products and Chemicals Inc. But he has also been burned by CEO changes, famously helping bring Ron Johnson to J.C. Penney Co., which subsequently floundered.

(END) Dow Jones Newswires

August 04, 2017 13:23 ET (17:23 GMT)