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Home>Pershing Square Releases Detailed Response to ADP’s September 12, 2017 Presentation

Pershing Square Releases Detailed Response to ADP’s September 12, 2017 Presentation

Pershing Square Releases Detailed Response to ADP’s September 12, 2017 Presentation


Pershing Square Releases Detailed Response to ADP’s September 12, 2017 Presentation

ADP Overstates the Total Shareholder Return During CEO Carlos Rodriguez’s Tenure by 62 Percentage Points; Actual Returns Are 24 Percentage Points Lower Than Peers

Pershing Square Capital Management, L.P. (“Pershing Square”) today published a detailed response to ADP’s (NASDAQ: ADP) September 12, 2017 presentation.

ADP’s presentation, replete with misleading statements and intellectually dishonest conclusions, demonstrates a lack of recognition for the substantial value-creation opportunity that exists at ADP. ADP’s presentation and its other proxy materials attempt to deflect and distract attention away from the key question – Is ADP achieving its full potential?

Among the misleading statements, ADP’s September 12th presentation and its other shareholder materials attempt to portray the company as outperforming its peers. To make that point, ADP has largely relied on an inflated total shareholder return (“TSR”) calculation over CEO Carlos Rodriguez’s tenure, and a misleading peer group comparison.

ADP claims its TSR over Mr. Rodriguez’s tenure is 203%; however, the purported TSR is calculated using three misleading data points:

  • ADP uses the wrong start date for Mr. Rodriguez. Mr. Rodriguez became CEO on November 8, 2011, which was announced pre-market on November 9th. The proper starting date for the calculation would therefore be ADP’s closing price on November 8, 2011. The company incorrectly uses ADP’s closing price on November 9, 2011, which does not include the 3.9% stock price drop on Mr. Rodriguez’s first day as CEO.
  • ADP uses an intraday 12pm price of $111.65 on July 25, 2017 as the end point for the TSR calculation. This intraday price reflected a spike in the stock price due to market rumors and large open market purchases by Pershing Square’s counterparty that day. A proper TSR calculation should use the market price as unaffected by Pershing Square of $97 per share.
  • ADP includes the performance of CDK after its spinoff in its purported 203% TSR calculation, a different approach from its previously filed SEC filings where ADP correctly treats the CDK spinoff as a dividend and immediately reinvests the proceeds of the sale of CDK on the first day of trading back into ADP shares. By including CDK in its proxy contest TSR calculation, ADP is taking credit for value created by CDK that ADP itself was unable to create when it owned the company.

Adjusting for these factors, ADP has generated a 141% TSR during Mr. Rodriguez’s tenure, 62 percentage points lower than ADP’s stated TSR of 203%, and substantially lower than ADP’s peers.

ADP claims that it has “delivered superior total shareholder returns against a broad range of comparable company groups,” but it has relied on its inflated TSR calculation in this determination. ADP also benchmarks itself against a peer group that is not representative of its peers. Notably, IBM, Oracle Microsoft, and SAP receive a 91% weighting in ADP’s calculation, with Paychex receiving only a 2% weighting. Comparing ADP's actual TSR of 141% to its actual HCM peer performance of 165% reveals that ADP has substantially underperformed its competitors during Mr. Rodriguez’s tenure.

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