- On Tuesday, ADP shareholders decided not give hedge fund billionaire Bill Ackman three seats on the company’s board.
- Ackman was trying to shake up a company that’s already doing well for investors.
- He lost the contest by a large margin. With that defeat, Ackman’s post-financial-crisis legend may fade away.
There is one god-like quality that matters on Wall Street. It is the ability to move markets with a word.
Bill Ackman, the billionaire founder of the storied hedge fund Pershing Square, may have just lost that ability. It all hinged on a proxy battle for three seats on the board of the data-processing company ADP that he lost Tuesday, with the company saying only 20% of shareholders supported him.
For those who’ve watched Ackman’s career since the financial crisis, this is a stunning reversal of fortunes. The silver-haired (and tongued) stock picker made a name for himself after he bet against MBIA, a mortgage insurer, before the housing market went bust. That bet alone turned him into “one of the guys who got it right” in 2008 — it gave him kind of a mystical sheen in the post-crisis market. People believed in him. There is no replacement for that confidence.
But things fall apart. For Ackman, that all started in 2014. He had just given a three-hour presentation on why his now-infamous Herbalife short was going to zero, and the market insulted him by carrying the stock higher as he spoke. It was a clear sign the man was losing his connection to myth, and this publication published a piece titled “What the heck happened to Bill Ackman?“
In the following year, and in 2016, Pershing Square posted massive losses.
The past two years have taken their toll on Ackman’s investors. They’re already pulling quite a lot of money from his funds when you consider restrictions on withdrawals, and — as Reuters reported Monday — some said they were expecting to pull more if this vote didn’t go Ackman’s way.
It’s easy to see why.
Everyone is bored now
ADP shares were doing just fine before Ackman came along, hitting record highs over the summer, but he thought they could do better if the company generated higher profits, streamlined its business, and focused on new technology. It’s all pretty dry stuff, even if the campaign itself was very colourful.
ADP CEO Carlos Rodriguez has called Ackman a “spoiled brat,” and he claimed that the fund manager said he was “second only” to US President Donald Trump in number of internet clicks. There was a time when language like this from a CEO would have obsessed the business world for days and claims to internet fame would have raised a few eyebrows across Wall Street.
But in a sign of changing times, Ackman’s ADP circus hasn’t garnered nearly the attention his disastrous battles over J.C. Penney, Herbalife, and Valeant Pharmaceuticals did. In all cases, he rolled out a massive plan, alerted the media, and made his case for all to see.
In the past, Ackman’s proxy battles were nail-biters. This time, ADP shareholders were leaking to CNBC that they planned to vote against Ackman’s plan the day before the vote. Ackman reacted to that news by railing against anonymous sources, insisting that proxy advising companies recommend that ADP vote him onto the board (they didn’t), and attacking another billionaire investor who suggested he should have done all of this behind closed doors.
There’s what, and then there’s how
What investors have learned with Ackman is that it’s not always what you do but how you do it that introduces risk. In fact, that’s essentially what Institutional Shareholders Services Inc. — the shareholder proxy adviser — was saying when it wrote its report on ADP v. Ackman.
(Ackman responded to the ISS report by accusing ISS and ADP of sharing inside information. That’s certainly not a way to win friends and influence people.)
In its report, ISS said Ackman may have some good ideas for the company but comes with a huge risk: himself. What Ackman would like to do quickly, ADP is already doing, it said, just not in a way that would disrupt the company.
“I wanted to make the company a technology company that provides services and compliance, rather than a services company that uses technology, which is what ADP’s DNA had been for a long time,” Rodriguez said in an interview with The Wall Street Journal.
Rodriguez isn’t crazy to think he should move more slowly than Ackman because the fund manager’s impatience was a huge criticism of Ackman’s investment in J.C. Penney. Under his direction the company ripped up stores, put in more expensive brands, and scared away its customer base. With Ackman on the board, it replaced its CEO — only to reverse course a few years later and hire him back to undo all the damage.
Ackman exited the investment shortly after.
He has promised to hold on to ADP win or lose. That’s another Ackman flaw at play. As an investor, he has a hard time letting go. Valeant Pharmaceuticals comes to mind. After massive fraud at the company was revealed in October 2015, Ackman rode the stock through its downward spiral until March 2017 — from a peak stock price of $US257 to a trough of as low as $US12*.
Valeant was a chaotic mess that ensnared a lot of hedge fund land, but few were as vociferous about the company’s value as Ackman. In an industry where the only currency of value besides money is being right, Ackman is in the hole.
And, in a world full of fund managers who won the financial crisis but can’t beat a rising market, Ackman perhaps represents a Götterdämmerung: a twilight of the all-knowing, post-financial-crisis Wall Street gods.
We can’t wait to meet the new ones, but before that happens, the old ones have to die first.
Update*: A previous version of this post misstated that Ackman sold Valeant stock at about $US3o.
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