Bill Ackman, the founder of $11 billion Pershing Square Capital, is known for doing massive amounts of research and then delivering lengthy, detailed presentations meant for analysts and institutional investors. It’s how the veteran activist investor gets his message across when he wants a company to make changes.
Automatic Data Processing (ADP), Ackman’s latest target, is a bit different.
“Individual investors are major shareholders of ADP,” Ackman told Yahoo Finance. “So, unlike a typical company where the institutions own a huge percentage of the outstanding shares, in this case, 28% of the stock is held by so-called mom-and-pop retail or individual investors. Again, there are a lot of sophisticated retail investors.”
To cater to these folks, Ackman will host his first-ever live webcast with retail investors on Tuesday at 7 p.m. ET, and is inviting retail investors to ask him questions about ADP.
The retail investing community could ultimately decide who wins the proxy contest.
Ackman, whose hedge fund owns 8.3% of ADP, a position valued at about $4 billion, is running a proxy contest to put three nominees, including himself, on ADP’s board. He contends that this is a company that’s a “great business” that has “vastly underperformed its potential.”
“Wow, this doesn’t make a lot sense”
“We look for situations where a great business has fallen and missed opportunities, and this is really one of them,” Ackman said.
One thing that stood out to the Pershing Square team was how the company compares to Paychex (PAYX), a competitor in the human capital management (HCM) business.
“If you look at Paychex, over the last six years, Paychex has gotten more and more profitable and productive,” Ackman said. “Their margins are up to 41% versus ADP’s on a like for like basis — ADP’s core employer services business is at a 19% margin — so basically less than half a direct competitor for a big part of ADP’s business. And we said, ‘Wow, this doesn’t make lot of sense.'”
He also called ADP “one of the least efficient big companies.” That said, he sees an opportunity to run the business much more effectively and efficiently.
“I didn’t take it personally”
ADP has pushed back on Ackman and Pershing Square’s ideas. Company management recently characterized Pershing Square’s views as “extreme and ever-changing” and said that they “would put the business at risk.”
In a recent interview with CNBC, ADP CEO Carlos Rodriguez went as far as to call Ackman a “spoiled brat.”
“I didn’t take it personally,” Ackman told Yahoo Finance.
Ackman is concerned because Rodriguez seems to be “in a very comfortable position” and that one of the major issues at ADP is “complacency.”