It used to be the call a CEO feared – if it ever came at all.
Back in the old days of corporate raiders and the more buccaneering of today’s activists, a Sunday night call to let the corner office holder know that the Wall Street Journal had somehow got the scoop that an activist would be filing a Schedule 13D on Monday calling for changes was almost standard practice. Those who found out from the Journal itself the next day didn’t have it much better.
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In recent years, surprise attacks have declined somewhat, as institutional investors have made clear they prefer lengthy engagements of the kind that are now fodder for proxy statements. Marcato Capital Management and Buffalo Wild Wings sparred for a year before it was time to go to shareholders. Trian Partners and Procter & Gamble have been talking since February (although not before Trian disclosed its stake) – three months before the activist nominated Peltz.
A factor has been the rise of the advance notice bylaw, typically restricting nominations for the board to a 30-day window that opens some four months before the expected date of the annual meeting. Such a bylaw has saved many a company from an unprepared or unsophisticated investor that realized its options too late. “There are few circumstances where an advanced noticed bylaw doesn’t do a disservice to an activist investor,” Schulte Roth & Zabel’s Ele Klein told me.
By taking a stake in Automatic Data Processing just a week before the nomination deadline, Pershing Square Capital Management put the ball in management’s court. CEO Carlos Rodriguez opted to send it back with interest, refusing to extend the nomination deadline and going on CNBC yesterday to describe Bill Ackman as a “spoiled brat.” Moreover, he charged, “If you want to be on our board – our board, as far as I know in the six years I’ve been CEO has never asked for an extension for anything – they show up on time and they show up prepared.”
Once the smack of the insults – which are reminiscent of those of now-departed Autodesk CEO Carl Bass about Sachem Head Capital Management and Eminence Capital – fade, Rodriguez will still have questions to answer about his business.
Initial signs are that Rodriguez will spend more time discrediting Ackman’s numbers than offering his own. Just before the end of his interview, he remembered to throw in a line about ADP having increased its dividend 42 years in a row – and hoping to get to 50, “if Mr Ackman leaves us alone” – but otherwise attacks on Ackman represented a crutch. Opportunities to talk up ADP’s technology were left on the field, although “high return business” received a few airings.
Proxy contests are not linear and first mover advantage can wear off. In six days, Ackman will put his case and the risk to ADP’s board is that the image they have built up of an unreasonable and precocious hedge fund manager will lose a little of its luster when their own shortcomings are exposed. Examples of an attack on an activist winning over either the media or shareholders are few and far between in recent years. This one could rewrite the rule book, or halt somebody’s pay check.
Article by Activist Insight
