When Bill Ackman's crusade to gain a foothold in the boardroom of Automatic Data Processing got off the ground back in July, it had all the hallmarks of a great hedge fund comeback. The activist play came somewhat out of left field, but there was a convincing enough investment thesis there: ADP is an established leader in the HR products field, but suffers from a broad perception that its current leadership has done too little to battle off technologically adept competitors. Most importantly, Ackman needed a campaign to get the taste of Chipotle out of his mouth.
With public perception mostly behind his thesis (see, e.g., Glass-Lewis), all Ackman needed to do was run a nice, smooth campaign, free of all the hoopla and spleen that might turn off risk-averse investors. That's where things went off the rails. Ackman and ADP beefed over whether Ackman had forgotten to do his homework when he requested his board seats and whether the company's stock record was as it said was and whether ADP lied to ISS and whether Ackman lied about that. Despite all the attacks on his dignity and professional reputation, Ackman maintained a Quixotic level of confidence, particularly regarding his Trump-level media chops. Yet what began as a rebound from crushing embarrassment increasingly looked to be just another crushing embarrassment.
Now, with the shareholder vote just a day away, it looks like crushing embarrassment will carry the day:
Bill Ackman's Pershing Square does not have the votes to win three seats on ADP's board at the company's annual meeting Tuesday, according to multiple investors.
It's not clear what Ackman will do if that reporting pans out. ADP stock was down a point on the news, suggesting that Mr. Market really does want to see Ackman shake up the company. But if he fails to make it onto the board, what's the use in keeping all those shares in a company that is being woefully mismanaged?
The deeper question is what an ADP loss says about Ackman himself. It would be hard to spin a company victory into anything other than a personal repudiation of Ackman the man. In previous Pershing Square investment calamities – Valeant, Chipotle, the other one – the story has been that Ackman was wrong about the company. In ADP's case, a majority of shareholders evidently believe Ackman is wrong for the company. Not only is it more painful than simply misjudging an investment; it threatens Ackman's very identity as an activist investor.
But that's OK. Ackman has a much larger mission that simply earning returns for investors:
“The vast majority of my actions have been good for America,” Ackman said.
And in regards to ADP, Ackman has already rehearsed a talking point that might cushion the blow, somewhat:
“This was a company that got no attention from its investors or the public,” Mr. Ackman said in an interview. “As a result of our research and the proxy campaign, the shareholders and the company have a much better understanding of the massive opportunity to be unlocked and that is inherently a good thing.”
If only doing things that are good for America and good for ADP could be good for Ackman as well.
Activist Ackman seen on losing end of ADP battle, investors say [CNBC]
Ackman investors wonder if ADP bet will deliver their paychecks [Reuters]
ADP Vote to Offer a Status Check on Standing of Activist Investor Ackman [WSJ]