The ADP-Ackman Fight Will Get Dumber

Welcome to the post-truth activist campaign.
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Basically as soon as Bill Ackman announced an activist campaign against ADP's board leadership, the affair was mired in pettyname-calling, slapstickerror and mutual distrust. From there, it's only gone downhill. This week, the dispute has come to center on what should be an uncontroversial data point: how much ADP's stock has gone up since the current chief executive took the helm. But given the parties at the table, even this seeming point of fact has turned into a swamp of ontological uncertainty and self-serving recriminations:

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ADP says it has produced a total shareholder return of 202 percent since Carlos Rodriguez was named CEO in 2011, but Pershing Square's analysis claims the more proper calculation is 141 percent – far below ADP's rivals and an overstatement of 62 percentage points, Pershing Square argues. The hedge fund plans to release the details of its analysis on Monday.

Pershing has not yet released an analysis, but it's clear what the hedge fund is going to argue. And rare as it might be for us to say this around here, Ackman has a point. As ADP explains in a press release from last month, the calculation that yields the 202 percent TSR ends at the closing bell, July 27, 2017. Let's have a look at what that day entailed for the ADP ticker:

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That's quite a jump! What could have happened that day to cause the 14-percent price spike? Did it have to do, perhaps, with the portfolio allocation decisions of an area hedge fund manager?

It's clear that if ADP decided to measure to almost any other day – the week leading up to Ackman's purchase, for instance, or Aug. 3, the day before the press release went out – the company's TSR would look less flattering. And that wasn't the only finger ADP put on the scale. According to Pershing, the company opted not to include the 4-percent price drop that greeted Rodriguez on his first day as CEO. Moreover, to get to 202 percent you have to include returns from CDK Global, which ADP spun off in 2014. Leave out CDK, and the TSR falls to 190 percent.

The irony here is that if it weren't for Ackman's intervention, ADP wouldn't have been able to claim the robust six-year shareholder return that it did. Conversely, to get at the true numbers Ackman has to downplay the Ackman Effect, which might well have generated the best returns he'll ever see in the stock. These two deserve each other.

Ackman Claims ADP Is Drastically Overstating Its Stock Returns [Institutional Investors]

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