The E-mail Bill Ackman Wasn’t Supposed to See

The war of words between Pershing Square Capital Management founder and chief executive Bill Ackman and his latest activist target heated up Monday, when the hedge fund firm refuted ADP CEO Carlos Rodriguez’s version of the recent interactions between the two men.

In a Monday filing with the Securities and Exchange Commission, Ackman came close to calling Rodriguez a liar in a response to an e-mail the ADP chief executive inadvertently sent to Ackman, instead of its intended recipient, ADP general counsel Michael Bonarti. In that e-mail, Rodriguez said he didn’t believe Ackman was willing to work with him. Pershing Square disclosed on August 4 that it had taken an 8.3 percent stake in ADP, a $50 billion market-cap global payroll processing company.

In response, the hedge fund activist told Rodriguez he had “unfairly characterized their interactions to date in an effort to make Pershing Square’s requests appear unreasonable to the rest of the Board and the investing public.”

Last week in a CNBC interview, Rodriguez lashed out at Ackman, calling him a “spoiled brat” who doesn’t understand the company. Earlier, ADP said Ackman wanted to control ADP with five board seats and the ouster of its CEO. But on several separate occasions, on the phone, via e-mail and in person, Ackman had told the CEO he was willing to work with him, the filing stated.

[II Deep Dive: Ackman’s Pershing Square Gears Up for Battle with ADP]

In the misdirected e-mail, the CEO said he did not find Ackman’s statement “credible” since it was “conditioned on his having the same view of the opportunity” for ADP as Ackman did, according to the filing. But according to Ackman, Rodriguez told him days earlier on a phone call that he “understood the issues Mr. Ackman had raised” as well as the “opportunity and need for change at ADP.” The activist investor has yet to detail his vision or research to ADP executives, its board, or the investing public.

After receiving the e-mail, Ackman wrote back and “assured Mr. Rodriguez of the genuineness and good faith nature of his e-mail and other communications to date, [and] expressed his disappointment in the Company’s response,” the filing stated.

Just days earlier, Ackman had told ADP chairman John Paul Jones that he believed the company needed to make “transformation changes” to improve the company’s profitability and competitiveness, and that “based on his experience... a CEO recruited from outside the Company may be necessary to accomplish such a transformational change, but that Pershing Square was open to working with existing management if it shared Pershing Square’s view of the opportunity and had the required skills,” according to the filing. Ackman says that he then told Rodriguez the same thing.

The two CEOs met the next day, on August 3, as Ackman hoped to avoid a proxy battle to obtain board seats. Pershing Square asked for an extension on the deadline for nominations to allow it to meet with the entire board and “present its research and conclusions... and engage in initial discussions without having to nominate directors.”

According to the filing, the ADP execs indicated it would be hard to get the entire board together in August. Rodriguez, however, has said Ackman needed the extension because he was going on vacation.

In the August 3 meeting, Ackman said he was ready to nominate directors if the deadline was not extended, and the next day, the company made public its refusal of his extension. At that time, ADP claimed Pershing Square wanted a 30- to 45-day extension on the deadline, when the hedge fund later “modified” its request to one week, the filing stated.

In addition to expressing a willingness to work with Rodriguez, “at no time did Pershing Square seek effective control of the company,” the filing stated. In previous proxy battles, Ackman has typically proposed minority slates. After ADP refused its request to extend the deadline for nominations, last week Pershing Square nominated three directors, including Ackman, to the ADP board.

Most activist battles have been settled without proxy fights in recent years, including two of Pershing Square’s recent investments, Chipotle Mexican Grill and Air Products & Chemicals. (Chipotle did not change its CEO, but Air Products did.) Ackman said he later suggested Rodriguez contact other CEOs he has worked with, including former Canadian Pacific CEO Hunter Harrison, the filing stated. Ackman led a successful proxy battle at Canadian Pacific, installing Harrison, leading to a 150 percent increase in the stock price.

Pershing Square, which had a prior investment in ADP, first began amassing its current stake, most of which has been done with derivatives, on May 1 of this year. Ackman typically does extensive research on his investments, often presenting hundreds of power point slides outlining his thesis to investors. A webcast detailing its research and proposals for ADP is planned for Thursday morning.

Ackman is now slated to meet with the ADP board on September 5.