Billionaire hedge-fund manager Bill Ackman revealed his “transformation plan” for ADP Thursday to more than double the company’s stock price in an epic 167 slide presentation.
ADP’s profit “margins are vastly below where they should be,” Ackman said on a conference call Thursday, walking listeners through Pershing Square’s analysis and research.
“ADP’s historical success has made it a lethargic and inefficient sleeping giant,” he wrote in the presentation.
The hedge-fund manager shared the five key points of his proposal later in the slide show:
1) “Fix corporate structure, Business Unit silos, matrix structure, corporate bloat and inefficiency (bureaucracy, spans-and-layers).”
2) “Accelerate investments in necessary product and back-end improvements.”
3) “Accelerate product migrations, sunset back-end systems, and cut associated legacy spend, with some reinvestment in product and other back-end improvements or other growth initiatives (i.e., Big Data).”
4) “Reduce excess support personnel; focus on value-added services.”
5) “Increase sales force productivity with better product offering.”
Ackman said he believes if ADP executes the plan it will lead to a “significant increase” in sales growth and profit margins for the payroll processor.
Pershing Square predicts if the company is managed properly ADP’s earnings per share can rise to $8.70 by fiscal 2022. As a result, its share price “can increase to $221 – $255 per share” in less than four years, according to the firm.
ADP closed at $111.10 on Wednesday.
A spokesman for ADP did not immediately respond to a request for comment.
The hedge-fund manager has become embroiled in a public battle with ADP management.
Pershing Square recently took an 8 percent stake in ADP. Ackman told CNBC on Aug. 4 he is seeking big changes at the payroll processor. In a counterpunch, ADP CEO Carlos Rodriguez said Ackman “doesn’t know what he’s talking about” in an interview with CNBC’s David Faber on Aug. 10.
In a statement on Aug. 4, ADP compared its six-year stock performance under Rodriguez to Pershing Square’s hedge fund returns from 2012 to 2016.
“Since Carlos Rodriguez became CEO nearly six years ago, ADP’s total shareholder return of 202% is well in excess of the S&P 500 TSR of 128% – and is many multiples of Pershing’s TSR of 29%,” the company said.
The hedge fund has nominated three directors to ADP’s board, including Ackman, who revealed Wednesday he raised an additional $500 million in a co-investment vehicle for the firm’s ADP investment.
His hedge fund has stumbled in recent years with high-profile losing bets on Valeant Pharmaceuticals and Chipotle Mexican Grill.
Pershing Square Holdings is underperforming the market this year. The fund is down 2.2 percent year to date versus the S&P 500’s 10.6 percent return through Aug. 8, according to its website.