Shares of Automatic Data Processing, Inc. (NASDAQ: ADP) climbed 16.9% in July, according to data from S&P Global Market Intelligence, after the HR management software and services specialist announced solid fiscal fourth-quarter 2017 results, and following news that activist investor Bill Ackman's Pershing Square Capital Management increased its stake in the company.
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On the former, ADP's revenue last quarter climbed 6% year over year to $3.1 billion, including 7% organic growth, while adjusted earnings per diluted share from continuing operations fell 4% over the same period to $0.66. ADP CEO Carlos Rodriguez noted that the company ended its fiscal year in line with expectations.
But investors were much more excited by the subsequent news that Ackman's Pershing Square had built an 8% stake in ADP, leaving the market hopeful that the activist investor would step in to bolster the stock price. Shares climbed 9% in a single day on July 27 as a result.
In a follow-up press release last week, ADP took the unusual step of revealing that Pershing was "seeking effective control of ADP through five board seats at ADP's 2017 annual meeting as well as a CEO change." In addition, ADP noted that Ackman himself would be among those board nominations.
However, and perhaps unsurprisingly, ADP's board refused a "last-minute request" from Ackman to extend its Aug. 10 deadline for new board nominations. Ackman subsequently nominated three candidates, whom ADP promised it will "evaluate [...] as they would any other potential directors to assess their ability to add value to the board for the benefit of all ADP shareholders."
But I won't hold my breath waiting for ADP to voice support for Ackman's candidates. The company has already voiced its belief that the current board "has the right balance of leadership continuity and fresh perspectives to help ADP continue our strong track record of delivering value to shareholders while successfully executing on our 'All in on HCM' [human capital management] strategy and global opportunities for growth."
ADP also pointed out it has invited Ackman to present his ideas on how the company can make improvements to that strategy and its operations.
In the meantime, investors can look forward to seeing both Ackman and ADP make their cases for their respective board nominees between now and the company's annual shareholder meeting, which is usually held in early November. And while it seems likely to be a contentious proxy battle, ADP investors can at least take solace knowing that everyone is working with a common goal of generating shareholder value.
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