Billionaire investor William Ackman is buying a large stake in Automatic Data Processing Inc, two people familiar with the matter said on Thursday, a move that sent the U.S. payroll company’s stock up 16.5 percent to a record high.
His hedge fund Pershing Square Capital Management has been building a position in ADP using money raised recently for a new investment, they said. ADP and a spokesman for Ackman, Fran McGill, declined to comment.
As speculation mounted that Ackman, one of the hedge fund industry’s most prominent activist investors, was buying shares ADP’s stock price surged more than 16.5 percent to $120 before closing at $115.63.
The move is especially noteworthy since the company has little debt. At the same time some of its competitors like Workday Inc and Equifax Inc lost ground.
The stock move underscores just how much investors believe the 51-year-old investor can push management to perform better even after his fund has suffered two years of losses.
News of the stake was first reported by Bloomberg.
Ackman had been hinting for weeks that his investment team was close to making a new bet on what he called a classic Pershing Square-type of business: one that is simple, predictable and free cash flow generating.
But he has been mum on the name, likely to prevent other investors from stepping in front of him and making potentially lucrative trades.
After a humiliating bet in 2015 on Valeant Pharmaceuticals International Inc led to heavy losses at Pershing Square, Ackman said in May that he was poised to go on a great investment run as he and his team return to basics.
And a bet on ADP could be exactly that, a company his investment team knows well after Pershing Square previously owned it between 2009 and 2011.
“For Pershing Square, this would be wading into known waters,” said a person familiar with the hedge fund and its investment style, adding “this is not Valeant.”
One of Ackman’s signature moves has been to suggest — either gently or forcefully — that management needs to be overhauled at his target companies and Thursday’s price movement at ADP indicates investors expect the same here.
At Air Products and Chemical Inc, former CEO John McGlade quickly stepped down after Ackman raised money in the summer of 2013 and unveiled the bet a few weeks later. He also replaced CEOs at Canadian Pacific Railway Ltd and J.C. Penney Co Inc. At Chipotle Mexican Grill Inc, an investment which has hurt Pershing Square so far this year, the co-CEO stepped down and Ackman’s firm got two board seats.
Ackman has previously raised special purpose vehicles which have been successful in the bets on Air Products and Burger King. Ackman’s hedge fund is off roughly 2 percent through the middle of July.