Whether Ackman Wins Or Loses His Battle With Management, He's Likely To Cause Change At ADP

Automatic Data Processing ADP is a wildcard for investors after activist hedge fund manager Bill Ackman made the company his latest target. Ackman’s Pershing Square Capital took an 8-percent ownership stake in ADP, and Ackman immediately nominated three directors to join the company’s board.

Last Thursday, Ackman revealed his turnaround strategy for ADP in a public conference call. Ackman proposed expanding margins in the company’s Employer Services segment, as well as cutting corporate expenses.

The company wasn’t receptive to Ackman’s ideas.

“We strongly disagree with many of the assertions made by Mr. Ackman in today’s presentation, which betrays a fundamental lack of understanding of the current state of ADP’s business and strategy,” the company said in a statement.

However, Ackman hasn’t backed down to the possibility of a proxy battle.

“We look forward to the annual meeting where shareholders will be given the opportunity to elect Pershing Square’s independent directors,” Pershing Square said in a statement Monday.

Related Link: BMO 'Learned Some New Things' From Pershing Deep Dive Into ADP

Citi Research analyst Ashwin Shrivaikar said this week that, regardless of whether or not Ackman gets what he wants from ADP, his efforts will likely be a net positive for the stock.

“Our view now is that regardless of who ‘wins or loses,’ ADP will tighten up its planning, delivery and operations in order to show it offers a better/safer alternative,” Shrivaikar wrote.

While Citi isn’t convinced ADP is a buy just yet, the firm has raised its “base case” price target for the stock from $98 to $110, and sees upside to $130 if Ackman’s proxy battle works out for the best. For now, Citi maintains a Neutral rating on ADP stock.

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