Billionaire investor Ackman loses bitter ADP proxy battle

By Trevor Hunnicutt

ROSELAND, N.J. (Reuters) - William Ackman got what Automatic Data Processing Inc's chief executive called an "ass-whipping" on Tuesday as the activist hedge fund manager lost an acrimonious fight to win seats on the payroll company's board.

It was the latest in a string of public defeats for Ackman, who raised $500 million from investors to take a stake in ADP. Some of Ackman's backers have told Reuters they are considering pulling their money from his funds.

Fewer than 25 percent of votes were cast in favor of Ackman's slate of three directors looking to shake up the company in the proxy contest, which became a three-month-long showdown between the billionaire investor and ADP CEO Carlos Rodriguez.

 

Ackman arrived at the company's annual shareholder meeting at its Roseland, New Jersey, headquarters looking relaxed. He helped himself to a pastry, then took a seat in the fourth row with his associates, a few feet away from an anxious-looking Rodriguez, seated alone.

The mood changed after the vote tally was announced.

Reading from prepared remarks, Ackman faulted the proxy voting system but accepted defeat. "We came in peace," he began, later shaking Rodriguez's hand.

Rodriguez got in the last word. "This was an ass-whipping," he told Ackman and the assembled shareholders.

BITTER BARBS

Over the last few months, Ackman and ADP had traded increasingly bitter barbs through securities filings, television appearances, conference calls, webcasts and private meetings with investors.

Ackman said management complacency had turned ADP into an inefficient corporate slugabed pushing outmoded products that even a top sales force could not sell. ADP countered that Ackman brought no new ideas to the table, risked disrupting the company's steady path to growth and behaved like a "spoiled brat."

ADP's stock was up 0.8 percent at $112.17 in early trading after the vote results were announced.

Ackman launched the ADP proxy contest as an underdog, taking aim at a company engaged in the unglamorous business of providing human resources technology and largely backed by Wall Street. ADP's share price has more than doubled under Rodriguez's tenure, and the company has posted relatively solid earnings growth.

Ackman had asked ADP shareholders to approve his proposal to seat three new directors, including himself, and oust three others, including Chairman John Jones. He has also suggested Rodriguez is the wrong person for the job, and called for the departure of ADP's technology chief, Stuart Sackman.

INVESTOR UNREST

Several of Ackman's Pershing Square investors who spoke to Reuters in the run-up to the ADP vote said the outcome would affect their confidence in his investment ability.

Ackman, 51, made a name for himself during the 2007-2009 financial crisis with a public and aggressive bet against bond insurer MBIA Inc . He has made similarly contentious investments in or against companies ranging from retailers Target Corp and JC Penney Co Inc to Canadian Pacific Railway Ltd .

Although the average annual returns for Pershing Square's core fund are 15 percent since its inception in 2004, Ackman racked up double-digit losses in 2015 and 2016 after a 37 percent gain in 2014.

Bets on Valeant Pharmaceuticals International Inc , Herbalife Ltd and more recently Chipotle Mexican Grill Inc have all weighed on returns. So far this year, the fund is barely in the black, compared with a 15 percent rise in the S&P 500 Index and a roughly 6 percent gain for the average hedge fund.

On Tuesday, Kevin Walkush, a portfolio manager at Jensen Investment Management, said the firm had cast about 1 million votes in favor of ADP management, and has since sold some shares based on their rising value.

Walkush said Ackman deserved credit for pushing ADP to disclose more details on its margins and other areas. But the portfolio manager said the company's strategy was sound as it revamps its sales force and migrates to the cloud.

"He seemed late to the party," Walkush said of Ackman. "His expectations to us seemed unrealistic."

MORE AGITATING

Among major investors, spokespeople for Vanguard Group and State Street Corp declined to comment on how they voted their ADP shares. A person familiar with the vote said funds run by BlackRock Inc supported at least one of Ackman's nominees.

Ackman's Pershing Square owns almost 2 percent of ADP's common shares, making it the seventh-largest voting shareholder, according to Thomson Reuters data. When counting unexercised options, the value of the stake is roughly $2.3 billion.

After the meeting, Ackman said he was disappointed but felt he had accomplished a lot. He has said he will continue agitating for change.

"The company, in order to win, made a number of very significant commitments to shareholders about growth," he said. "If they achieve those objectives and they exceed them, then I think shareholders will be happy, the stock will go up. If they don't, we'll be back next year."

Rodriguez played down Ackman's influence and said he was insulted by how Ackman had characterized ADP and its employees. Despite having little knowledge of the company, he was able to get media attention with his remarks, the CEO told Reuters.

"This is all about who had the best narrative, who has the best hair," Rodriguez said.

(Reporting by Trevor Hunnicutt in Roseland, New Jersey; Additional reporting by Ross Kerber and Svea Herbst in Boston; Writing by Lauren Tara LaCapra; Editing by Bill Rigby and Colleen Jenkins)