Ackman likens investment in ADP to success at CP Rail

Automatic Data Processing Inc. as he saw before his Canadian Pacific Railway Ltd. proxy fight that sparked a turnaround at the railroad.

ADP could have avoided its own fight with Ackman if the payroll outsourcer’s board had granted him a one-week extension of the Aug. 10 deadline to nominate directors, the billionaire agitator said on a conference call Wednesday. Now, instead of being allowed time to present his case to the board in private, Ackman will take the case directly to investors during a webcast scheduled for Thursday morning, he said.

“I think they would have heard what we’re going to say tomorrow in a private context and I think that would have led to constructive discussion,” he said.

ADP is attractive because it’s a simple, predictable, freecash-flow generating business unlevered with net cash on its balance sheet, Ackman said. Pershing Square said it raised more than US$500 million in outside capital to join in its ADP investment.

While the upside at ADP is akin to CP, Ackman said there’s also limited downside risk.

At Canadian Pacific, Ackman led a successful proxy fight to oust then-chief executive Fred Green after years of underperformance. Green was eventually replaced by former Canadian National Railway Co. CEO Hunter Harrison, who turned CP from the least-efficient North American railroad into one of the best performing. Pershing Square made US$2.6 billion on its investment.

“The last time we had a proxy contest for board seats in the kind of activist context was Canadian Pacific,” Ackman said. “We got something like 90 per cent of the vote from shareholders.”

Pershing Square’s original goal was to achieve a share price of $150 at CP. The stock closed Tuesday at $193.61.

Ackman said he’d hoped Pershing Square’s investment at ADP would have been similar to its approach at Air Products & Chemicals Inc., where discussions were held in private and details weren’t made public.

Ackman’s bets haven’t always been so fruitful. A highprofile investment in Valeant Pharmaceuticals International Inc., sold in March, cost Pershing Square as much as US$4 billion. His stake in Chipotle Mexican Grill Inc., meanwhile, has been hit by renewed food-safety concerns and is worth almost US$190-million less than when he acquired it last year.