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The dust-up between the company and Pershing Square Capital highlights the tensions between activist funds and the management and boards of their targets.
David M. Katz, CFO.com | US
May 14, 2007
Ceridian Corporation, the scandal-plagued payroll-services company, announced on Monday that it had fired Gary Krow, the president of its thriving Comdata division, for disclosing confidential information to Pershing Square Capital and "unauthorized meetings" with the hedge fund.
The company's board learned about Krow's alleged misconduct through documents and testimony provided in a lawsuit by Pershing Square, according to a Ceridian press release. The hedge funds' prominent founder, William Ackman, sued Ceridian in Delaware Chancery Court on March 7. Pershing demanded that the company let him view and distribute the full contents of two letters he claimed that the executives had sent to the board that allegedly criticized the company's previous chief executive officer, Ronald Turner, and the board's ability to rein him in. On May 11, 2007, the court denied Pershing Square's request.
The two executives, Pershing Square says in a release, were Krow and former Ceridian CFO Doug Neve. Krow, whose number at Ceridian had been disconnected, could not be reached at presstime. Pershing Square said it was "disappointed but not surprised" at the firing of Krow, who was also an executive vice president of the company. A Ceridian spokesman said that the company had no comment on Pershing's response.
The dust-up between Ceridian and Pershing Square spotlights some of the tensions that can ensue when relations between activist hedge funds and the management and boards of their corporate targets start turning sour.
As of early March, Pershing Square, which manages about $3 billion had bought up 14.2 percent of Ceridian's shares and launched a proxy fight to install a new board slate that included him. When Ceridian announced that Neve, its finance chief since 2005, would be stepping down, it drew harsh words from Ackman. "The announcement of [Neve's] departure is a real disappointment," he said in a press release, describing Neve as a "first-class CFO."
When Pershing Square first bought a large bloc of Ceridian shares in 2006, it had only intended to hold them as a passive investment, Ackman claimed in a letter to the board. But at a meeting with current CEO Kathryn Marinello in January of this year, Ackman sensed that Marinello intended to pursue an acquisitions strategy and perhaps fire Krow, the president of Ceridian's successful credit-card subsidiary.
That prompted the hedge-fund chieftain — who favored a Comdata spin-off and wanted the company to focus on its flagging human-resources-services business — to go activist, he wrote. For her part, Marinello wrote back to Ackman that there had been a "miscommunication" and that neither an acquisitions-driven strategy nor Krow's dismissal were afoot.
Ackman noted then that Neve had been widely credited with re-staffing and rebuilding Ceridian's finance operations and with restoring investor confidence in the face of a lengthy Securities and Exchange Commission probe of the company, five restatements, and a bevy of alleged accounting violations.
Jim Burns, executive vice president of Ceridian and president of Ceridian International, was named to temporarily replace Krow at Comdata.