Bill Ackman Talks About ADP & Stock Position (FULL INTERVIEW)

Welcome to the halftime report I'm Scott Wapner we  begin today with a CNBC exclusive Bill Ackman live   on his battle with ADP the activist investor here  in studio to answer our questions on his latest   target a target that has so far said no thank you  bill welcome back it's good to see you thanks very   much I think the question many people have is why  ADP a company whose stock has beaten the S&P 500   over the past five and ten years along with its  chief competitor paychecks a company that has a 40   percent return on equity that's more than double  the S&P little debt on its balance sheet pays out   60% of its earnings through dividends has bought  back stock at what people think are attractive   prices this does not sound like a company that  necessarily needs your help it's a great company   and it's a great business and the stock has done  well over a long period of time but the issue for   shareholders is not how well the company has done  over the past the issue is how well it's going   to do in the future and the bottom line is ADP  is massively underperformed its potential your   judge relative to your potential not relative  to you know the status quo and this is a company   that has huge opportunities to improve its  profitability it's not an efficient business   and in fact many of the things that you mention  really are explained the reason why the companies   underperformed when you have no debt when you  have this really profitable business when you   have dominant market share those are the companies  that over time they get less efficient because   they don't have to be as efficient and that lack  of efficiency becomes an issue for the business   going forward it also becomes an issue in terms of  the company's effectiveness versus competitors and   this is a company had almost no competitors for  most of its 68-year history and then the last you   know call it decade they've started to see real  competition which is really accelerating the last   five years it's easy to look at the the stock  performance and say okay five years ADP up more   than a hundred percent paychecks 69s and 71 those  numbers are not correct ten-year ATP of 166 that's   S&P 65 those numbers not correct and and one of  the things we're gonna point out in a presentation   that we're gonna release tomorrow is that the  company overstates their total shareholder return   under the CEOs track record how do they do that  well they start for example the measuring period   on the day after he started this EO well actually  if you started on the day before the night before   which is the proper measuring period the  total return comes down by 17 percent as   though there's they include in their total return  the performance of a company called cdk that was   spun out of ATP so ATP disposed of a business that  business is doubled basically doubling its margins   the stock price doubled they include that an ATP  shareholder return when in fact that's actually   one of the issues we'd love to talk about you know  how a business has done once ADP has disposed of   them the answer is they've done extremely well  you can't a CEO take credit for the performance   of a business you spun off when it's no longer  under your management I mean you put out a video   today along with the letter that you wrote  to the company with a specific question that   you're asking them and you say and I'm quoting  here over the last decade ADP has really lost   its way mm-hmm it's difficult to make that case  is it not when I mentioned numbers see that the   answer is it's all about the business's potential  this is a stock that has done well and by the way   if you looked at the stock price chart of IBM  up until a period of time and you talked about   their track record you say wonderful things I'm  not saying ADP is IBM today but it's at risk of   becoming idea IBM if they don't you know take  seriously the competitive threats they face and   if they don't run their business as efficiently  as they can so critics say you don't understand   the business CEO Carlos Rodriguez said you don't  know what you're talking about those worry those   were his words leaked Cooperman was on with me  says this is an incredibly high touch business   he would know he was on the board for almost  20 years sure maybe I should address both of   those let's listen to what Lee said specifically  and then you can address it directly of course   I know in respect Bill Ackman so it's difficult  for me but notwithstanding that I considered his   behavior to be in this instance somewhere between  foolish and appropriate irresponsible and I feel   it's my job to speak out you guys have been in  contact you and mr. Cooperman so I actually been   spoken to him last few weeks and I like Lee I  think he's a terrific guy but I point out that   he made those comments prior to our making our  presentation you know one of the things I said   to Lee is before you come out and go on CNBC and  say you don't like what we're doing or whatever   at least listen to what we have to say we made  the same point to the board we wanted to meet   with the board we wanted to sit down with them  we wanted to work privately with them as we had   with most of the companies that we've invested in  over time and they forced us into a proxy contest   and that's unfortunate but the good news is if you  talk to if Carlos is talking to his shareholders   which I'm sure he is doing now I'm sure he's  watching this interview as we think I'm sure   he is or prep perhaps you're right I hope he is  what we're hearing from shareholders that they're   learning a lot about ATP and I think no one today  disputes we don't know a lot about the company we   put out a very detailed presentation 168 page  detail presentation about the business if you   just look at the analyst commentary about what  they've said they're very supportive of the notion   that there are very significant opportunities to  improve operating margins Sanford Bernstein came   out with a recent report I have right in my hand  Barclays yesterday but if you talk to the analysts   you're listening what the analysts have to say in  response to our presentation if you talk to the   major Sherrill's of the company who've now started  to do work on the business I mean one of the   fascinating things about ATP it was sort of the  stock in your portfolio you didn't worry about it   just went up they met the earnings they paid a big  dividend bought back stock you didn't worry about   it's important all a manager didn't assign a team  analysts to dig into it what we did is we assigned   a team to dig into it and we spent six months  looking at the business we talked to many former   employees of the company and I think we've done a  service in terms of educating the shareholder base   about the business and the more people look the  more they learn about an opportunity and really   the best the easiest way to understand that one of  the things that resonates most with shareholders   is this spin off transaction so ADP September  2014 spun off a company called cdk was owned by   ATP for 42 years under ATP's ownership but it had  16 percent even margins operating margins within   two years it had 26 percent margins when it was  spun off if you put up a stock price chart of cdk   this is what the ADP missed out on and you know  in three years from the stock has doubled and how   is it that when it was run by ADP all they could  muster was 50 basis points of annual improvement   and then when it's spun off by ADP they improved  margin seventy percent in two years and they're on   their way to doubling margins in three years  right that's really what we're talking about   we're talking about I mean you're the crux of your  case is that they can improve their margins to be   closer to what paychecks is achieving that's 80  percent of that's 80 percent bottom line case 80   percent of the issue and beyond that we think they  can just be a more effective company we think they   gave more effective with technology you know Lee  Cooperman his point was right Lee said this is   a very very high touch company the answer is  it shouldn't be right the the yeah there are   certain kinds of service it's very valuable to  your customers in this business right they have   you know valuable technical compliance and other  advice that they're giving customers are making   about making tax filings but you shouldn't have  to call ATP to change your password you shouldn't   have to call ATP to to understand how the product  works the product should be incredibly intuitive   and the competitors that have nipped away and are  now taking real share on the national account side   of adp just have better products you know and  today people don't want to call Amazon to help   them use the website to order something this is  completely they want a completely intuitive easy   to use product and one of the biggest issues in  terms of cost for ADP is the products are not as   easy as they should there's a lot of hand-holding  and waiting on you know if you think about the   nature of the business we're making a tax filing  or a payment on on you know for April 15 think   about the the staffing they have to put into the  call centers with the deluge of calls coming in   last minute to try to understand how to get  something done and what we're talking about   here is just making this a best-in-class company  and making it an efficient company and making ATP   now the best company can be don't you risk that  what is the bread and butter of of this company   know what Lee Cooperman says is high-touch and  that's what makes ADP we're here in fact what   it is Lee was on the board six years ago as he  told everyone he sold the stock and probably he   sold the stock six years ago and the world has  changed dramatically in six years in terms of   the competitive landscape of the company Lee was  right that this company was a processing company   that relied on tens of thousands of service people  to deal with customers that's not a model that   works today you know you put up a chart of their  offices around the country they've got a hundred   and thirty offices they have ten million square  feet of real estate I mean it's it's a that's a   legacy of the old payroll business when people  would drive their payroll tapes you know to pay   their employees I mean the world is a different  world today and ADP has to ask to modernize it you   mentioned this Bernstein Report which I'm holding  in my hand it's not like there are wholeheartedly   in agreement with your idea that margins can can  go to this you know tremendously higher level they   say the right answer that's what they call it the  right or fall somewhere in between what you say   and what ADP thinks itself that's an analyst  one analyst opinion you cited it but here's   what here's what I can tell you this quite simple  I'm sorry and I think Lisa Ellis is an excellent   analyst and we believe they can expand margins  by 1,200 basis points some analysts find that   too high a number or that difficult to achieve  that's fine bottom line is the company's response   to our presentation was to say they're gonna get  margins up a hundred to 200 basis points over the   next three years okay that's an embarrassingly  low number that's actually about 16 basis points   lower per annum than they promise shareholders  as the company has not you know growth is slowed   from you know five six seven percent and now  you know call it three and a half percent and   their core employer services business you know so  the business is not hitting on all cylinders not   growing as quickly as it used to and let's assume  that we're wrong and we can't expand margins by   1,200 basis points it's only 600 you know what  that 600 a system what management is is attempting   to achieve you think you'd be in a different  position with the company today had you handled   it differently from from the outset I mean that's  one of the points that that mr. Cooperman so Mr   Cook was making you mr. Koopman was not in the  room when I approached when or on the phone when I   called the company no but I'm talking specifically  those waited they waited till essentially is the   last minute it's not try and extend a nominate  it's clear it's not accurate okay what the company   said in their press release they put out after our  meeting with them was that I called the company I   said I wanted to fire the CEO I wanted to take  control the board and I need I was going to go   on vacation for a month and a half and therefore I  needed a 45-day extension now I've been doing this   a long time it's not my first activist rodeo if  you want to call it that and you know this is a   good company it's got a you know great reputation  Carlos is someone that I have but certainly an   acquaintance we went to school at the same time  same place that's not how it went down now all   that being said I think that's a sideshow why does  a company take that approach the answer is they   hire activists defense advisors and the advisors  tell them if you show any leg toward acumen if   you show any indication that you're supportive of  his ideas the stock is going to turn over into the   hands of event-driven investors and it can become  inevitable you're gonna lose a proxy contest stock   went to 120 115 16 on the rumor of our involvement  in the companies on everything they can to knock   the stock down and say there's no opportunity  why are they doing this because they don't want   the stock to go into hands of shareholders are  going to support and that's not you know maybe   that's a good short-term strategy for a proxy  contest it's not the right thing to do for your   shareholders and and if you take a look at we've  had four examples one of which are in the midst   of now but if you look at Canadian Pacific look  at Air Products you look at zoetis and you look   at Chipotle and these are four cases we're working  on operational improvement of business and those   are the only four that we have taken that kind of  initiative and CP we promise shareholders that we   would increase margins by about 50% margins have  doubled the stock is up almost 5x from the price   that the unaffected price before we were there  Air Products we told shareholders that's a margins   could be increased by more than 50% they've gone  from 15 to 23 percent the stock is up 90 percent   under the leadership of septic a semi so why does  we believe there was a huge opportunity in the   March inside the stock is more than doubled  and and then Chipotle we owned it for a few   months they had an unfortunate you know norovirus  incident but we think management's doing all the   right things but approving the efficiency in the  business in three of those four cases we've been   welcomed by the management of the business and the  board they sent we sat down with them we shared   our views they liked what we had to say and people  work very effectively with them in the first case   CP we got the same response we got from ADP and  you know the fascinating thing is they have the   same advisor it's a second time that I'm aware of  we had Morgan Stanley as a defense adviser one of   the things we have a slide actually we're going to  put out you know later in the week we compare what   ADP is saying about our plan and about Pershing  Square it's almost the identical words that that   Canaan Pacific is board used to describe you know  the risk and our plan that we didn't know anything   about the business these are all catchphrases  that activists defense advisors like in particular   Morgan Stanley used but there seems to be you know  between you and and the CEO mr. Rodriguez an issue   about how this whole thing got off to what you  yourself have said is it is a bad start here hold   on a second what shareholders will tell you this  is a complete sideshow and by the way I invited   Carlos to the US Open with me he couldn't go we  have a perfectly nice relationship this is a lot   of I know that seem DC thrives on the kind of you  know battle this is not that kind of battle the   issue here is how big is the margin opportunity at  ADP management says there's 100 to 200 basis point   opportunity of the next three years we think  that numbers closer to 1,200 pages points and   if I'm elected to the board of the company and  get 1 out of 10 seats I'm gonna work with the   other directors to make that happen and that's  that's what this is about it's very simple you   want a major shareholder on the boards got a 2.3  billion dollar investment in the company with a   third largest investor in the company in terms of  dollars committed to the company and you know we   intend to be a long-term investor in the business  you think it's helpful to have a that point of   view in the room whether someone who's had a lot  of experience at extracting costs and efficiency   and making a business more effective that's what  I'm gonna bring to the table that's the question   for shareholders the further question is we have  two other directors who are putting up against   two of the other directors in the board and we  say look you've got directors have been on the   board for 10 to 14 years we have directors with  fresh perspectives experience and cost efficiency   experience and going through these kinds of  business transformations would they be additive   to the board and that's a very simple question for  shareholders to answer and there's no downside to   putting us on the board of directors so you're  saying you can you can work with Rodriguez who   went on this network and called you a spoiled brat  yes I didn't my mother didn't like that comment   because she raised me not to be a sports no sure  you didn't you didn't you know having much worse   names and Carlos and I have had a fine interaction  ever since he made those comments and you know one   of the things I said look I'm a very direct person  so I was honest and perhaps honesty caused this   thing to go off track I said look you know if the  board really believes that there's only a hundred   200 basis point opportunity and margins over  the next three years then it's Carlos believes   that it's going to be hard you know for this  you know it would be difficult answers we have   to get on the same page as what the opportunity  is but there's no reason why he can't be a very   successful CEO here but if he's gonna say hey  put a foot and foot down on the pavement say   look there's no chance of this company the board  is basically saying that ADP is the best it can   be and we can't do any better what we're saying is  this company can do better I we've had a very good   working experience working with the CEO of zoetis  and it had a superb working experience with other   CEOs of the course of my career and and I think I  could work extremely effectively with Carlos and   I you know a lot of that bluster that you see you  you know again PR advice from everyone you've had   bluster of your own I mean in the opening letter  you suggested that he needs to be replaced that's   not correct correct doesn't document does he  need to be replaced I don't form a view about a   management team until I have a chance to sit with  that management team talk about a business see how   they perform the last thing I would do if I join  this board would raise my hand and say Carlos have   to go you know what we do and what I'd recommend  to the board is we get some outside advice take   a look at the organizational structure of the  company take a look at the cost structure of the   company benchmark versus competitors are there  ways to make this business and more efficient   business you know if the CEO stubbornly refuses  to go along with what the board believes should be   done here then the board of which I'm one director  will make whatever decision is the right decision   so I'm not I'm not going though the company has  made this about control with one seat on the board   or even with three new directors on the board two  of which have no affiliation with us this is not   not control this is simply about fresh voices in  the boardroom and a message from shareholders that   we believe and shareholders believe there's an  opportunity just like nacelles has to say just   like the Barclays analyst has to say that there's  a very significant opportunity to improve the   margins of this business 600 basis points is an  enormous number you know for a company with you   know a 50 billion dollar market cap that is a very  very large opportunity that's only half of what we   say can be achieved so you you did meet with the  full board yes you made a settlement offer to the   company they originally let me tell you about the  meeting with the full board because there's a huge   difference between what you read and the press  release is written by a PR firm that are probably   not signed off by every director of the company  and what happens in the room we sat down at a   table at a Marriott not far from the headquarters  it was a very small table we had 15 people crowded   around the table was a very intimate engagement  everyone was friendly everyone was thoughtful   yeah we gave him spent an hour walking through a  presentation there were periodic questions they   were good questions I was very encouraged by the  dynamic and it made me feel very very comfortable   with that if I were to join this board these are  people that I could work very effectively with   then of course a few days later they put out a  press release written by a PR firm that makes   it sound like some very harsh battle that's about  trying to put the company in a position where they   win a vote and advisers recommend that kind of  behavior and most boards have not had activists   take large stakes particularly companies of this  size and directors tend to defer to the advisers   so I blame all the noise sounds like everything on  the advisers I blame the noise and the advisers I   think there are a lot of very high-quality people  on this board and I think that many of them add a   lot of value and I think there were well selected  directors here that said there is no Cheryl to   representative on the board the board has not  reached into their pockets and bought stock in   the company our two nominees each spend $300,000  buy stock and ADP and that's more than the entire   board is spent to buy stock in the company so  there is not a shareholder orientation on the   board and by putting on someone who spent 2.3  billion dollars and a meaningful portion of that   is my own personal capital so I have a lot of  personal money at risk in this company I do not   take directors fees so I will be perfectly aligned  with shareholders so I'm not there to collect fees   on there to you know if I do well in my investment  the shareholders will do well on their investment   so your positions 8% only 2% is in common stock  that's correct I want to play a sound byte what   Rodriguez told Jim Kramer sure recently I'm  hoping as an 8% shareholder because as you   know I'm not sure if it's to conceal what what the  transactions were but there were derivatives that   were used stock options and forward contracts  and I'm hoping that at this point now that he   doesn't need to conceal his position anymore that  he's converted his his ownership into true stock   ownership and not just they leverage position  using stock options how do you respond to that   sure so number one here's our position very simple  beyond two percent of the company in common stock   if you throw out the rest of our investment  with a ninth largest shareholder the company   so we're got a billion dollars or so invested in  the common stock of the company we own very deep   in the money stock options that have a term that  goes out into late 2020 and early 2021 and those   options are over-the-counter they are extendable  they're unusual and that we actually receive a   pass through the dividends on the meaningful  percentage of the options that we own and what   that does is it's the economical we don't these  are not speculative options they're struck at   fifty five sixty dollars a share the stock that's  107 these are options that give in effect us a its   equivalent of buying the stock with a 30% margin  loan but I don't like margin loans because margin   loans can force you out of a position and so it  just gives us now by the way the stock goes up a   dollar those options go up a dollar that goes down  a dollar those options go down a dollar so it's   you know we own the economics of eight point three  percent of the company meaning if the company   goes from being worth 50 billion to being worth  100 billion we're gonna make you know 8 billion   dollars so it's a big commitment to the company  and it makes us now the other thing I point out   is the vast majority Carlos sold a bunch of stock  in the run-up on our and the balance on her the   rumor of our involvement most of his almost the  entire amount of his investments in the form of   stock options those options he did not buy he  received them of course and they're struck they   were struck out the money when he received them  you know he owns a levered position in the company   which is a lot more lever than the one that we  have so the notion of the CEO would criticize   us for the 2.3 billion dollars we committed to  the company it doesn't make a lot of sense the   other way shareholders don't care what Cheryl is  care about is one we've got a meaningful stake in   the business and we intend to own that stake for  a long period of time - were the only way we're   gonna make money here is if the stock does well  this is not a liquid position we're planning to   own this thing for you know four five six years  so it's really not so much only about this proxy   contest we're gonna be here for a long time but  but beyond the money doesn't this hurt you in   a proxy vote you can only vote percent that's  correct we cannot we can only vote 2% and this   is I think another merger doesn't on the margin  you say it does but at the end of the day we're   gonna end up on the board of the company if a  majority the shareholders support us in some   sense the fact that we are and we're not forcing  ourselves onto the board by buying so much of the   stock that we're guaranteed to win right we're  putting ourselves in the hands of shareholders   and we're saying look you know two percent of the  stock and common stock we don't have the right to   vote more than our position than that and we want  you to decide whether you want a major shareholder   on the board whether you want two independent  directors with great business track records a   lot of board experienced recent and relevant  experience about business transformation one   of our candidates just is on the board of  Symantec he's chair of the Audit Committee   has also been on it he was on a committee of that  board they did precisely this they went and took a   look at what is the opportunity to improve the  efficiency of our business they hired outside   consultants and with board oversight management  executed the plan Paul is one of those members   of the committee next directed six hundred  million dollars with a cost of a semantics   to the benefit of those shareholders we want to  do precisely the same thing here we thought the   fact that Paul just came from a process like that  would be very helpful in working with the board   here I've watched the video that you put out  today a two-minute video I referenced earlier   where you speak directly to the retail investor  yeah which is unique in and of itself a lot of   times these proxy votes come down to the index  funds you speak directly to the retail investor   why yes well it's number one the retail investor  almost always gets ignored in proxy contests and   part of that is retailing Bachelor very often  throw out these mailers when they come in the   mail and that's unfortunate because in retail for  shareholders think look I own a hundred shares   how is it going to matter well actually the if  you think about retail investors here as one   conglomerates agglomerated group of shareholders  they're the big shareholder by far the retail owns   retail community owns 28% of this company that's a  major voting block and so we're going to reach out   to that community we're doing that with a series  of videos we're going to host I think the first   ever you know webcast conference call for retail  investors we're gonna do it at 8:00 p.m. at night   we're gonna do it so that people after they come  home have a nice dinner or at least on the East   Coast work is hopefully over they can come on  they're gonna ask us questions but wouldn't plan   to do and our goal is to you know explain what we  have in mind to the retail investor and I think   the reach retail investors don't like corporate  waste they probably don't like corporate waste   more certainly as much as institutional investors  probably more you wanted to address the fact that   a DP and Rodriguez himself have taken shots at  your performance they've done it a couple of   times you think your performance over the last  couple of years hurts you in this instance here   are the facts so there's a group called 13d  monitor he's been on your show I think Kent's   wired certainly been on CNBC they track all the  activists they've done they've looked at all of   our activist campaigns 146 percent average return  on our activist campaigns SP 16 or 17 percent over   the same period that's number one you look at  our track record from January of 2004 we formed   the firm to the present look at ATP's return  from January of 2004 to the present ATP is up   approximately 300 percent over that period by the  rate including the rise as partially as a result   of us purchase Square over the same periods  of 500% cuz they know what you're you're they   knock your total and shareholder return it's  and you know it you can certainly we took a   major loss as you're well aware of then a what  started out as a passive investment in Valeant   Pharmaceuticals disastrous investment you know  we we own that mistake that's part of our track   record but even with valiant which is included in  our hundred and forty six percent average return   on investment we have a superb track record as  an activist know what shareholders are focused   on frankly they're not so much focused on Pershing  squares you know they're not investors and persons   were what they're looking at is we right or  wrong you know one of the things we did today   is and put out a question for ADP we've had  to do a lot of work to try to figure out the   segment margins of employer services business  so there's a small business segment was kind   of called a medium business segment there's a  large business segment there's international   the company does not break out the margins we  said look let's put this to rest what are the   margins of each of the various segments and let's  compare those margins to those of competitors and   we've asked the question and maybe we asked too  many questions in our first presentation so we're   just going to ask one every shareholder wants to  know the answer to that question the fact that the   company has been unwilling to answer the question  as to what their margins are by segments tells you   something this is something you sent out that I  have it right here in front of me you sent this   out this morning at 9:30 in the morning mm-hmm  and you're still waiting for it for the answer   to that question I haven't got an answer Emily  should give them a call if only though it was   that easy with with shareholders you say you  know the the shareholders they don't care but   do you think that your performance over the last  couple of years the most recent performance that   you have it's all about makes it more difficult  to make your case that some of those investors   who think you may be right with ADP can't get past  that other part of your story a company will try   to if you look look at how the companies approach  this we've made a number of very important points   we said look you're vastly underperforming  your potential look at revenue per employee   it's irrefutable EP revenue per employee 162  thousand dollars the average competitor 224,000   you know 28% less explain your gross margins are  60% your average competitive gross margins are   74% paychecks 25% of employer services the core  business of ADP competes directly with paychecks   they have a product called run which competes  with a paycheck product what are your margins   net business Carlos says on TV they're about  the same as paychecks we'll pay checks as 41%   margins in that business the ADP had 41 percent  margins in that business would mean the rest of   employer services as 12 percent margins which is  a disastrously low number so look I want to work   with Carlos I want to work with the board I want  to get beyond a proxy contest that was our goal   from the very beginning there's always a little  bit of emotion you know look raising with a CEO   that you know we have in some cases you know in  some cases we work with management other cases   that's CEO is not up but doesn't want to pursue  the opportunities not up for the challenge we made   changes obviously people can react emotionally  to that I totally get it but if you were one   of the things I encourage Carlos to do and one of  these that encouraged the Chairman to do excuse me   talk to the CEOs of companies were on the board  ask what it's like having me as a director and   universally you will hear that I am thoughtful  that I don't take over the room that I listen   to other points of view that I'm not constantly  calling the CEO it's very rare for me to pick up   the phone and call the CEO of a company where  investor in I wait for them to call when they   have something where I can be helpful and that's  been my approach as a director and if only the   chairman of this company had you know made a few  more calls about what what I'm like as a director   I think this would be a lot more straightforward  but for shareholders this is about what is the   opportunity to make this company the best it can  be and I think by adding an independent voice in   the room someone's made a two point three billion  dollar investment in the company committed to be a   long-term investor in this business I think yeah  I don't see how anyone loses and you know the   we don't we're not controlling the board I'm ten  percent of the voice it reminds me of Nelson you   know you look at Procter and Gamble and they're  spending a hundred million dollars or whatever the   number is trying to keep the guy off the board I  guess my advice is the harder a company fights to   keep someone off the board the more debt Berkeley  that board in the case of P&G and the case of ADP   needs some independent voices and I was as you  were telling that story I was thinking to myself   some of the same things that Nelson Peltz who  was on this network yesterday morning is trying   to convince Procter & Gamble of that he's not  a disruptive force I want to take a quick break   we'll come back you've made your case we do have  an investor on our panel today in ADP we'll find   out what he thinks about the case that Bill Ackman  has made for ADP much more with Bill Ackman next all right welcome back to the halftime report Bill  Ackman still with us we also have Jim Laban Thal   joining us today along with Steve Weiss Surratt  City Jon Najarian Surratt I'm gonna start with   you bill you you made your case directly to an  ADP shareholder today which side are you voting   on vote the gold proxy car my question I mean it's  all the things you've laid out are accurate look   when they take money now if say they go and  say we want to grow margins how much will in   the short-term impact their ability to grow the  business because as you know their stock options   all are dependent on the stock price so if they're  more short-term thinking do you think that affects   what they're thinking now or is this longer-term  the answer is this is I think cdk is a very easy   story this is not about the stock takes a dive and  then three or four or five years no stock goes up   you look at cdk they implemented basic blocking  and tackling on how to make a business more   efficient how to make it more effective getting  customers off the old versions being thoughtful   about the real estate footprint you know the the  cdk is kind of a microcosm of adp particularly   maybe they can put up a stock price chart of cdk  III just CPK was it was a great asset that was   just mr. Barringer where's the stock price you're  not giving me a stock price track well we'll get   it it's coming in real time anyway the point is  I'm basically a straight line up because as you   make margin improvement your profits go up and if  you keep the same you know dividend distribution   policy your dividend goes up at a faster rate oh  now we have it up there as you as you're talking   it's up a hundred percent in three years that's  not bad it's not like that business all of a   sudden became a much better business the business  didn't change at all the management didn't change   for the first two years of that turnaround  what changes they took a different approach   to what they could extract in terms of margins  when the company was owned by ADP for 42 years   they said we can do 50 basis points per annum  of margin improvement as soon as it was owned   by the public and it would no laurent rolled by  this board or this management team they magically   found an opportunity increased margin seventy  percent in two years seventy percent these are   incredible numbers and that business basically  duopoly so it was a great opportunity for cdk   business let me I look I'm it was too small for us  I missed it but a colleague now here's something   another interesting thing sure so cdks such a  good test case because the guy used to work for   me Scott Ferguson about 10% of the comp we were  invested with Scott ok so that's a good way for   you to participate and Scott sat down with him  and said hey there's a big opportunity here again   I wasn't in the room but my guess is he made a  presentation not dissimilar to the kind of one   we've made publicly and the board said hey this  is kind of interesting you know keep quiet and   look watch what we can do and we would've been  delighted to take the same approach here and   look at what happened what happens ATP is they  say look we can't get do anything more this is   as good as it's gonna get we're gonna give you 50  basis points Branum a margin maybe 75 but that's   it so as you sit there you reference Nelson and  P&G a company that you were so closely involved   with some years ago we're instrumental in the  change of the CEO in fact is this deja vu all   over again to quote Yogi Berra as you sit here  and watch this you know look there are a lot of   big proud companies and I think PNG is one of  the great big proud companies and they are sort   of they almost treat Nelson Peltz with words like  a virus they're fighting Nelson the notion that   this company's gonna spend a hundred million  dollars I mean your shelter this company how   do you feel about them spending a hundred million  dollars making it harder for Nelson to get on the   board just let shareholders decide what's the  downside to putting on two directors I mean my   case one at ten in Nelson's case one at 12 you  want opposing look I have my own advisory board   have my own advisory board meeting yesterday you  don't put an advisory board of people who are just   gonna tell you the stuff you already know want  people in the room are gonna challenge you you   really should be long that should you really  be short that you know what are your thoughts   what are your ideas that's helpful to me right  and it's the other thing that's helpful to the   CEO is to have a guy in the room saying you know  what I know we did things a certain way for the   last sixty eight years but is it worth taking a  fresh look at our approach to cost is it worth   rethinking our organizational structure instead  of it being you know we have separate silos for   small customers and a completely separate business  user and for kind of medium sized customers if you   look at the ADP campus they have like big office  buildings you know spread around the country for   each of these different divisions it was that  the right way for this company be organized   or is there a smarter way bill I take what you're  saying as gospel I'm not inclined you against you   so let's use the 1200 basis points of March and  none I just BP yeah ADP I want to put I'm sorry   I went back to ATP I want to push back just as a  devil's advocate here let's say and I'm looking at   the at the last year's report June 30th they  earn 3 dollars and 87 cents so let's say you   get that 1200 basis points of pick up on margin  and maybe that goes to 550 maybe even 6 and I'm   sorry I don't have your presentation in front  of me I'm sure you've laid out the numbers my   question to you we're all in the markets right and  we think about where should the stock trade today   it's about 25 times a forward earnings multiple  so maybe that comes down into the high teens my   question to you if you're my investor if you're  my advisor from a high teens multiple after you've   made your changes do you really think the stock  price is going to appreciate from there it's not   a question of whether you're right I understand  sequester how the market responds to it so we   think this business becomes a more valuable  business and gets a higher multiple three years   out and here's why growth is slowing right now why  is growth slowing there's some light reading for   you and their employer services business growth  is slowing it's down to three and a half percent   it's kind of the actually two to three percent  projected for 2018 why is bro slowing one of the   reasons is they're losing market share and the  national account part of their business where   we were very critical of ADP in our original  presentation was how they're doing versus the   work days of the world versus The Ultimates of  the world and when you have a decent sized part   of the business it's now down to about fifteen  percent of the overall company where they're   losing share I mean again they don't disclose they  don't break out the second so we can't give you a   precision in the numbers that slows the growth we  think happened we have a solution an idea for how   to fix this national account business I mean I'll  talk about it for the first time we haven't talked   about it with investors yet ATP's been working  on a replacement product for their what they're   called their original Vantage product which has  not gotten a lot of success with customers there's   a company called Ceridian we know it well we  bought 15 percent of Ceridian we owned it we   ran a proxy copses to get on the boards we've  gotten a battle back then they've chose to sell   the company sold to th Li and they sold th league  ten years ago th Li still owns the company it   still controls the company Serena was like a mini  ADP kind of an old-fashioned payroll processing   company but they did something very smart they  with basically a very successful startup called   de force and de force had a cloud-based betting  really best-in-class national account product and   at time in attendance product and one of the  interesting things is since th Lea's owned it   for ten years it's now in the end of the life of  the fund apparently gonna take it public sometime   next year ADP could acquire that business why is  that interesting one we think it would overnight   solve the national account problem because they  because de force is considered a best-in-class   product to their huge synergies de force also has  a superb time and attendance product ADP private   labels their time in attendance product and pay  something like 150 to 200 million dollars to a   private company called Kronos they could turn  that off tomorrow and replace it with de force   Ceridian has three and a half billion dollars  have flowed because it's a small company they   don't run able to manage the float as well  as ADP manages the float so there's a pickup   on float there's a savings inspector Kronos if  a product that has gotten huge traction that's   winning business away from ATP Blackrock one of  ATP's biggest shareholders left ADP and went to   the de force product what better measure do you  have that they got a weakness in that part of   their business they could solve it overnight and  if I'm th Li I'd much rather do a transaction with   ADP get cash be done then take it public and  dribble it out over the next whatever number   of years so you know these are the kinds of ideas  that if we were on the board of directors we would   encourage the board and management to explore  and the shareholders would have the benefit of a   shareholder in the room saying you know what your  hope you're paying too much or this makes sense   that's something that's an outside-the-box thing  for ATP to do they've never made a quote-unquote   major acquisition like that but it might be a  very efficient way to solve a problem and we   think that's an interesting thought we know that  you have to get going we appreciate you being   here at month now for me on ATP is that why you're  throwing me out Scott you're the one who said you   had to catch the train to make that's train out  of here have you tried the case so it's see it at   CMG you know I wanted to because I thought you're  gonna ask me that so the answer is getting crushed   on Twitter by the way you know I'm beginning to  believe that Twitter is filled with a bunch of of   Chipotle short socks okay because on TV yesterday  right here on CNBC you had a little taste test so   the answer is people like it in the office it is  not it doesn't have the chemical filled with the   chemicals that the normal case so does it was  quite a engineering exercise to get this thing   done with you know natural ingredients people  like it I'm gonna try it and you know what I'm   we're on the board I can't tell you what the  results are on a story by story basis but I'm   hoping people are gonna be pleasantly surprised  you don't believer your support is a great company   we think management's doing an excellent job  we think there were some weaknesses and some   missing components to the management team and  the company's been filling out those elements   they're very responsive they want this thing to  be enormous success I think the stock is you know   we paid four hundred five dollars a share today  is 300 whatever ten for three hundred five we   think it's extremely cheap the stock went from  five hundred to three hundred on a Nova virus   incident in one store I think people should take  a look at that one thanks for being here again   next time I come on I will I will have a careful  review of that case well you can grab someone   your way to the Train you can even try it on on  the tracks thanks we'll see you again soon all   right show Lachman joining us today exclusive  on CNBC halftime report is back in two minutes you

Channel: StateAlpha Investing

Views: 39,024

Rating: 4.7740111 out of 5

Keywords: ADP, Bill Ackman, Pershing Square, hedge fund, stock pitch, stock idea, stock interview, cnbc interview, ADP stock, Carl Icahn, automatic data processing, payroll, adp stock, adp stock analysis, adp stock price, bill ackman stock picks, stock picks, bill ackman stocks, bill ackman stock crash, ackman stocks, payroll stocks, bill ackman investing, bill ackman strategy, bill ackman herbalife, bill ackman chipotle, chipotle stock

Id: uwo72TilumU

Length: 39min 17sec (2357 seconds)

Published: Wed Oct 04 2017