UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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|X| Soliciting Material Pursuant to ss.240.14a-12
CERIDIAN CORPORATION
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(Name of Registrant as Specified In Its Charter)
Pershing Square, L.P.
Pershing Square II, L.P.
Pershing Square International, Ltd.
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PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF INFORMATION CONTAINED
IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
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On January 18, 2007, representatives of Pershing Square Capital
Management, L.P., the investment advisor to Pershing Square, L.P., Pershing
Square II, L.P. and Pershing Square International, Ltd., delivered a letter to
the board of directors of Ceridian Corporation. A copy of such letter is filed
herewith as Exhibit 2.
SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER DOCUMENTS
RELATED TO THE SOLICITATION OF PROXIES BY PERSHING SQUARE, L.P., PERSHING SQUARE
II, L.P., PERSHING SQUARE INTERNATIONAL, LTD. AND CERTAIN OF THEIR RESPECTIVE
AFFILIATES FROM THE STOCKHOLDERS OF CERIDIAN CORPORATION FOR USE AT ITS ANNUAL
MEETING WHEN AND IF THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION, INCLUDING INFORMATION RELATING TO THE PARTICIPANTS IN ANY SUCH
PROXY SOLICITATION. WHEN AND IF COMPLETED, A DEFINITIVE PROXY STATEMENT AND A
FORM OF PROXY WILL BE MAILED TO STOCKHOLDERS OF CERIDIAN CORPORATION AND WILL BE
AVAILABLE AT NO CHARGE AT THE SECURITIES AND EXCHANGE COMMISSION'S WEBSITE AT
HTTP://WWW.SEC.GOV. INFORMATION RELATING TO THE POTENTIAL PARTICIPANTS IN A
POTENTIAL PROXY SOLICITATION IS CONTAINED IN EXHIBIT 1 ATTACHED HERETO.
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EXHIBIT 1
POTENTIAL PARTICIPANTS
The potential participants in the potential solicitation of proxies may
include the following: Pershing Square, L.P. ("Pershing Square"), Pershing
Square II, L.P. ("Pershing Square II"), Pershing Square International, Ltd.
("Pershing Square International", together with Pershing Square and Pershing
Square II, the "Pershing Square Funds"), William A. Ackman, Scott D. Ferguson
and Roy J. Katzovicz.
Pershing Square is a Delaware limited partnership principally engaged
in the business of investing in securities. Pershing Square II is also a
Delaware limited partnership principally engaged in the business of investing in
securities. Pershing Square International is a Cayman Islands exempted company
principally engaged in the business of investing in securities.
Pershing Square Capital Management, L.P., a Delaware limited
partnership ("Pershing Square Capital"), serves as investment advisor to the
Pershing Square Funds with respect to 15,724,334 shares (the "Subject Shares")
of the common stock, par value $0.01 per share (the "Common Stock"), of Ceridian
Corporation (representing approximately 11.3% of the outstanding shares of the
Common Stock)* held for the accounts of Pershing Square (6,899,332 shares),
Pershing Square II (86,343 shares) and Pershing Square International (8,738,659
shares). PS Management GP, LLC, a Delaware limited liability company ("PS
Management"), serves as the general partner of Pershing Square Capital. Pershing
Square GP, LLC, a Delaware limited liability company ("Pershing Square GP"),
serves as the general partner of each of Pershing Square and Pershing Square II.
William A. Ackman, Scott D. Ferguson and Roy J. Katzovicz are employees
of Pershing Square Capital who may also participate in soliciting proxies from
Ceridian Corporation's stockholders. Mr. Ackman is also the managing member of
each of PS Management and Pershing Square GP. Messrs. Ferguson and Katzovicz do
not own beneficially any interest in securities of Ceridian Corporation and will
not receive any special compensation in connection with such solicitation. In
light of his managing member role in the controlling affiliates of Pershing
Square Capital, investment advisor to the Pershing Square Funds, Mr. Ackman may
be deemed to be the beneficial owner of the Subject Shares. Mr. Ackman will not
receive any special compensation in connection with such solcitation.
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* Calculated based on 139,124,108 shares of the Common Stock outstanding as
of October 31, 2006, as reported in Ceridian Corporation's quarterly report
on Form 10-Q for the quarterly period ended September 30, 2006.
EXHIBIT 2
[PERSHING SQUARE LETTERHEAD]
Board of Directors
Ceridian Corporation Headquarters
3311 E. Old Shakopee Road
Minneapolis, MN 55425
January 18, 2007
Ladies and Gentlemen:
As you are likely aware, Pershing Square Capital Management, L.P. and
certain of its affiliates own approximately 11.3% of Ceridian's outstanding
stock. We are writing to express concern about a number of recent developments
that have caused us to reconsider the passive nature of our investment in the
company.
We have followed Ceridian for some time. In our view, Ceridian has
underperformed and failed to achieve its business potential for more than a
decade. We believe that this view is widely shared by the investment and analyst
communities. We also believe that the fundamental value of Ceridian
substantially exceeds the value implied by its current share price. Furthermore,
we are confident that, properly managed, the company offers the opportunity for
shareholders to earn extraordinary returns.
As a result of our view of the company's undervaluation and the board's
decision to replace the prior CEO, we initiated an investment in Ceridian with
the expectation that the board and new management would pursue the low-risk,
high-return strategy afforded by the company's current circumstance. To that
end, we were cautiously optimistic when Kathryn Marinello was hired as CEO. That
being said, we were somewhat surprised that the board hired a CEO with no
experience in payroll or human resource services, but rather with a background
principally focused on payments and trucking - industry experience most relevant
to Ceridian's well-functioning Comdata division. At a minimum, however, we
thought management change would be a significant positive for the company.
We had originally intended to hold Ceridian shares as a passive
investment. However, two recent events have caused us to reconsider our intent.
First, we now find ourselves very concerned that Comdata, which represents the
majority of Ceridian's cash flow and equity value, may be on the verge of losing
its President, whom we believe is very important to the successful operation of
that business. Second, based on our recent meeting with Ms. Marinello, we now
Board of Directors, Ceridian Corporation
January 18, 2007
Page 2 of 4
fear that Ceridian as a whole may pursue a completely different strategic
direction than what we or any other shareholder would have reasonably
anticipated or desired.
POTENTIAL LOSS OF COMDATA SENIOR MANAGEMENT
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Comdata is Ceridian's best performing and most valuable operating
subsidiary. Late last week, we were surprised to learn that the continued
employment of senior Comdata management, in particular its President, Gary Krow,
may be in jeopardy. We are of the view that Mr. Krow's departure from Comdata
may substantially reduce the value of Comdata and thereby Ceridian. We further
believe that his exit could be followed by the departure of other key managers,
causing a further significant diminution in value. The prospect of losing
Comdata's President and other senior operating management poses an unacceptable
risk to our investment.
POTENTIAL CHANGES TO CERIDIAN'S STRATEGIC DIRECTION
---------------------------------------------------
Shortly after Ms. Marinello joined Ceridian in October, we attempted to
arrange a meeting with her, but we were told that we would not be able to do so
until January. Last Friday, we attended a three-hour meeting at Ceridian
headquarters with Ms. Marinello. This was the first opportunity afforded to us
to meet or speak with Ms. Marinello since her appointment as CEO.
In the meeting, Ms. Marinello came across as a hardworking, direct, and
experienced executive. In other respects, however, we were alarmed by what we
learned.
During the course of the meeting, we were surprised to hear that Ms.
Marinello does not share our concern about the potential loss of Mr. Krow. As
important, however, we left the meeting with the understanding that Ms.
Marinello currently intends to retain Comdata as a captive subsidiary and may
leverage its cash flow and balance sheet to invest in or acquire diversified
businesses, potentially on a global basis. In other words, rather than
management exclusively focusing on the company's flagging HRS operations and
liberating Comdata - an unrelated, high-quality, faster growing business that
would benefit greatly from independence - it appears that Ceridian may pursue a
conglomerate holding company strategy.
When we pressed on the subject of the future of Comdata, Ms. Marinello
was appropriately careful to state that she had not yet made a final decision in
that regard and that such a decision could take upwards of 18 months to explore.
She did indicate, however, that a Comdata spinoff would necessarily reduce
Ceridian's market capitalization, and therefore limit the size of the
acquisitions that the company could pursue. These comments are troubling to us
as we are strongly of the view that size should take a backseat to growth in the
per-share value of Ceridian.
In our view, an acquisition-driven conglomerate strategy would be a
serious mistake for Ceridian and its shareholders. We believe that such a
strategy is unlikely to increase shareholder value without undue risk. This
is particularly true in light of the current acquisition environment
Board of Directors, Ceridian Corporation
January 18, 2007
Page 3 of 4
which is characterized by extremely competitive auctions and well-capitalized
private equity and corporate acquirers. In addition, Ceridian possesses few if
any competitive advantages in making acquisitions. We believe that there are few
successful conglomerates other than GE and Berkshire Hathaway, and even these
superb companies were created over many years during much more favorable
acquisition environments.
We believe strongly that Ceridian should be run with the objective of
increasing shareholder value, rather than growing assets under management.
Therefore, we are of the view that the company should pursue a materially
different and simpler, higher-return, lower-risk corporate strategy that will
best serve shareholders, customers, and employees.
OUR VIEWS
---------
As a first step, we believe that Ceridian should spin off Comdata to
its shareholders. We believe - and expect the substantial majority of the
company's shareholders and the investment community agree - that the logic of
separating Comdata from Ceridian is so overwhelming that it is a business
imperative.
Comdata's business is materially different from that of the balance of
Ceridian's operations, is managed by a distinct management team, and is located
in a different geography. Its employees have not been adequately compensated for
their achievements because the equity compensation they receive in the form of
stock options on Ceridian has been diluted by HRS's long-term underperformance.
Beyond the strategic imperative, Comdata's growth, margin, and cash flow
characteristics deserve a materially higher valuation than the current value the
market assigns to Ceridian in its current configuration. As a result, we believe
the spinoff of Comdata would generate significant value in the intermediate and
long term for all of Ceridian's stakeholders.
In the more than 11 years that Ceridian has owned Comdata, Ceridian has
yet to identify any meaningful synergies between its two principal operating
units. When we raised the subject with Ms. Marinello, she was unable to cite any
such synergies, but postulated that some day Comdata could sell payment products
to HRS customers. In response, we pointed out that if Comdata continued as a
wholly owned subsidiary of Ceridian, the potential market opportunity for its
products would be diminished because ADP (and other competing payroll companies
that offer a much larger potential market for such a product) would be unlikely
to choose to purchase that product from a Ceridian-owned Comdata.
During our meeting with Ms. Marinello, she suggested that there were a
number of acquisition opportunities which might make strategic sense for
Comdata. While we acknowledge that this may be true depending upon the terms and
other specifics, we believe that Comdata will be in a much stronger competitive
position in making acquisitions if it is a standalone pure-play enterprise that
can use its likely-to-be highly valued equity currency in pursuing such
transactions.
Board of Directors, Ceridian Corporation
January 18, 2007
Page 3 of 4
We believe it is self-evident that Comdata's long-term value would be
maximized as an independent company. In addition, the ability to reward its
management with equity incentives that are directly tied to the performance of
its business would be an invaluable tool to retain and attract talented
individuals, and may obviate some of the personnel risks highlighted earlier.
With regard to HRS, we believe Ceridian management should focus on
improving its remarkably low operating margins, its lackluster customer service
record, weakness in its sales organization, and deficiencies in its technology
infrastructure. These basic operational improvements would provide more than
ample opportunity to enhance long-term value for all of Ceridian's stakeholders,
including shareholders, customers, and employees alike. Furthermore, the
intelligent use of the company's free cash flow and borrowing capacity created
by a dramatically improved, rationalized, and standalone HRS business will
further enhance shareholder returns over the long term. These goals should
command the full focus of Ceridian's senior management for the foreseeable
future. In addition, this strategy is materially less risky than expanding an
operationally challenged business through acquisitions.
In light of recent events, we feel that we can no longer remain a
passive Ceridian shareholder. We would have greatly preferred to voice our
concerns in a less public arena. Given what we have learned over the past week,
coupled with the imminent deadline under Ceridian's unusually early advance
notice provision regarding the nomination of directors, we are compelled to act
now to protect our investment.
As a consequence, we currently intend to nominate a slate of
alternative directors at the company's upcoming meeting of shareholders and
provide the requisite notice on or before the January 23, 2007 deadline.
We welcome the opportunity to commence discussions with you in advance
of the director nomination notice deadline regarding the matters discussed in
this letter. We would appreciate a response at your earliest convenience.
PERSHING SQUARE CAPITAL MANAGEMENT, L.P.
Very truly yours,
/s/ William A. Ackman
William A. Ackman
cc: Alan J. Sinsheimer, Sullivan & Cromwell LLP
Janet T. Geldzahler, Sullivan & Cromwell LLP