BOSTON/NEW YORK (Reuters) – Activist investor William Ackman on Thursday laid out his hedge fund’s goals for Automatic Data Processing Inc (ADP.O), saying the human resources outsourcing company needs to streamline its business and invest in technology upgrades.
Ackman’s Pershing Square Capital Management disclosed earlier this month an 8 percent stake in the $50 billion U.S. human resources outsourcing company and nominated three directors to serve on its board.
Ackman said in a conference call the company has failed to properly integrate its acquisitions and various human resources services, putting it at a disadvantage to smaller competitors like Paychex Inc (PAYX.O) and Workday Inc (WDAY.N).
“ADP’s margins are vastly below what they should be,” Ackman said on the call, saying the stock price could more than double in five years to $221 per share without a change in the company’s dividend, capital structure or credit rating.
ADP’s stock price fell 3 percent to $107.75 per share on Thursday, lagging its peers.
The company has failed to upgrade its technology and is selling products that are a “ticking time bomb” that need rapid improvement, Ackman and two research analysts at his $10.2 billion hedge fund said as they clicked through a 168 slide deck.
APD hit back at Ackman’s investment, setting the scene for what could become one of the season’s nastiest proxy contests. The company said Ackman was looking to take control and replace its chief executive while Ackman said he was ready to work with existing management.
ADP CEO Carlos Rodriguez compared Ackman to a “spoiled brat” based on the fund manager’s request to push back a board director nomination deadline.
Rodriguez’s public blasting of Ackman means the fate of ADP’s board composition will likely fall to a shareholder vote at the company’s annual meeting in November.
Pershing’s Square’s presentation argued that ADP is losing share to smaller, more nimble competitors with more technologically advanced products.
Ackman said on the call that ADP appears to be losing a “material” number of customers from its enterprise business.
Reporting by Svea Herbst-Bayliss in Boston and Michael Flaherty in New York; Editing by Meredith Mazzilli