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FIRST ON CNBC: CNBC TRANSCRIPT: FOUNDER AND CEO OF PERSHING SQUARE CAPITAL MANAGEMENT BILL ACKMAN SPEAKS WITH “SQUAWK BOX” TODAY

WHEN: Today, Wednesday, November 1, 2017

WHERE: CNBC's "Squawk Box"

Following is the unofficial transcript of a FIRST ON CNBC INTERVIEW with Founder and CEO of Pershing Square Capital Management Bill Ackman on CNBC's "Squawk Box" (M-F 6AM – 9AM ET) today, Wednesday, November 1st. Following are links to the video on CNBC.com: https://www.cnbc.com/video/2017/11/01/bill-ackman-adp-is-not-as-efficient-as-it-should-be.html?play=1, https://www.cnbc.com/video/2017/11/01/bill-ackman-were-doing-our-best-to-reach-out-to-adp-individual-investors.html?play=1, https://www.cnbc.com/video/2017/11/01/bill-ackman-we-were-entirely-right-on-herbalife.html?play=1.

All references must be sourced to CNBC.

JOE KERNEN: 20157 HAS BEEN FULL OF ACTIVIST DISPUTES, BUT THIS IS ONE OF THE BIGGEST THIS YEAR. THE PROXY BATTLE BETWEEN PERSHING SQUARE AND ADP WILL BE DECIDED AT THE SHAREHOLDER VOTE NEXT WEEK. BILL ACKMAN'S HEDGE FUND HAS A STAKE IN THE PAYROLL COMPANY AND IS SEEKING THREE SEATS ON THE BOARD. JOINING US NOW EXCLUSIVELY BILL ACKMAN, FOUNDER AND CEO OF PORTFOLIO MANAGER AT PERSHING SQUARE I'M GLAD WE HAVE A LOT OF TIME, BILL, BECAUSE IT'S VERY DETAILED, VERY NUANCED. I WANT TO DO ALL WE CAN TO GENERATE AS MUCH INFORMATION FROM YOU, BUT I WORRY THAT FOR SOME VIEWERS IT'S GOING TO BE SO ARCAINE THAT IT ALMOST GETS DIFFICULT.

BILL ACKMAN: IT'S ACTUALLY QUITE SIMPLE.

KERNEN: OK, IN THE MOST RECENT LETTER, YOU HAVE SOME PROBLEMS THE LETTER WAS EMBARGOED UNTIL 8:00, AND WE HAVE IT NOW. YOUR MAIN POINTS HERE ARE – IS THAT ADP HAS NOT BEEN TOTALLY FORTHCOMING AND IS ACTUALLY AT -- I DON'T KNOW IF I'D SAY Ad Hominem – I THINK THEY'VE TAKEN A LOW ROAD IN CERTAIN INSTANCES?

ACKMAN: I THINK IT'S PRETTY COMMON. YOU SAW THIS IN P & G, AS YOU GET CLOSER TO THE VOTE, IT GETS A LITTLE MORE CONTENTIOUS. BUT I ACTUALLY THINK THE ISSUE IS VERY SIMPLE. ONE, WE THINK ADP IS NOT AS EFFICIENT AS IT SHOULD BE. THE RESULT IS ITS MARGINS ARE HALF OF PAYCHEX, FOR EXAMPLE. NOW PAYCHEX COMPETES WITH ADP IN 35% OF ITS BUSINESS, IT HAS 41% MARGINS IN THAT PART OF THE BUSINESS. IF YOU APPLY THAT SAME 41% MARGIN TO THE PORTION OF ADP'S BUSINESS IN THE SAME SEGMENT, IT WOULD MEAN THEY MAKE ALMOST NO MONEY IN THE REST OF THEIR OPERATION. SO IT'S A VERY INEFFICIENT COMPANY. WE'D LIKE IT TO BECOME MORE EFFICIENT.

KERNEN: THIS WHOLE -- YOU TRIED TO GET ISS TO COME TO YOUR SIDE THEY'RE SAYING THAT THEY REJECTED YOU, ALTHOUGH YOU'RE SAYING ISS –

ACKMAN: NO, ISS SUPORTS ME FOR THE BOARD.

KERNEN: BUT THEY DON'T—

ACKMAN: HAVEN'T SUPPORTED ALL THREE OF OUR NOMINEES, LIKE THE OTHER PROXY –

KERNEN: YOU ARE SAYING AT THIS POINT THAT ADP TOTALLY MISLED ISS IN MANY DIFFERENT AREAS, AND ONE OF THEM IN CALCULATING, THIS IS WHERE I WORRY ABOUT, YOU KNOW, HOW DETAILED TO GET, BUT THE PEO PASS-THROUGH REVENUES ARE EXCLUDED AND THAT MAKES THE MARGINS THAT THEY'VE BEEN ABLE TO DO BETTER. AND –

ACKMAN: SURE.

KERNEN: IS THERE A WAY TO EXPLAIN THIS THAT EVERYBODY CAN UNDERSTAND IT? ARE THEY MISLEADING? ARE THE MARGINS WORSE THAN WHAT THEY'RE PRETENDING?

ACKMAN: SO ONE OF THE THINGS WE POINT OUT IS THAT ADP'S PRODUCTIVITY, YOU KNOW A MEASURE OF HOW MUCH REVENUE THEY GENERATE PER EMPLOYEE ,IS 28% LOWER THAN THEIR COMPETITORS ON AVERAGE, AND ADP IS A VASTLY BIGGER COMPANY. SO YOU EXPECT A BIGGER COMPANY TO BE MORE EFFICIENT, HAVE MORE PRODUCTIVITY, AND ADP – WE'VE ASKED ADP WHY, AND THEY'VE BEEN UNWILLING TO ANSWER. WE'VE ASKED THEM A SERIES OF PUBLIC QUESTIONS, AND THEY'VE BEEN UNWILLING TO ANSWER. THEY TOLD ISS, WHEN YOU DO THE CALCULATION, YOU SHOULDN'T COMPARE US TO COMPANIES THAT ARE IN THE PEO BUSINESS, AND YOU SHOULD LOOK AT US ON A GROSS REVENUE BASIS. AND ON THAT BASIS ADP ACTUALLY LOOKS LIKE THEY'RE REASONABLY COMPARABLE WITH COMPETITORS. THE PROBLEM WITH ADP, 28% OF ITS REVENUES COME FROM ITS PEO. LET ME BRIEFLY EXPLAIN WHAT THAT IS. SO PERSHING SQUARE HAS OUTSOURCED IT'S HR/ WHY? BECAUSE WE'RE A SMALL COMPANY. WE'VE GOT 60 EMPLOYEES AND WE CAN BUY HEALTH INSURANCE MUCH MORE COST EFFECTIVELY IF WE OUTSOURCE OUR HR TO A COMPANY THAT BECOMES WHAT'S CALLED THE CO-EMPLOYER OF OUR EMPLOYEES, AND THEN THEY CAN NEGOTIATE HEALTH INSURANCE RATES ON OUR BEHALF. SO WE PAY THEM, YOU KNOW, A COUPLE OF HUNDRED THOUSAND DOLLARS FOR HEALTH INSURANCE, AND THEY, IN TURN, REMIT THAT $200,000, WHATEVER THE NUMBER IS, TO THE HEALTH INSURER. THAT COUNTS AS REVENUE UNDER THE ACCOUNTING RULES, BUT IT'S REALLY NOT REVENUE BECAUSE IT'S PASSED THROUGH THE COMPANY DIRECTLY OUT THE DOOR. OK, SO WHEN YOU MEASURE THE PRODUCTIVITY OF ADP'S EMPLOYEES, ANALYSTS EXCLUDE THE PASS-THROUGHS AND THE CALCULATION. IN FACT, ADP ITSELF, WHEN IT CALCULATES MARGINS, EXCLUDES THOSE PASS-THROUGHS BECAUSE IT MAKES THE MARGINS LOOK BETTER BY EXCLUDING THEM, AND WE THINK THAT'S THE RIGHT WAY TO LOOK AT THE BUSINESS. WHEN THEY TALK TO ISS, THEY TOLD ISS, OH, YOU HAVE TO LOOK AT GROSS REVENUE BASIS, AND THE PROBLEM IS WHEN THEY COMPARED ADP WITH COMPETITORS THAT DID NOT HAVE PEOS, IT MADE THE PRODUCTIVITY -- THE REVENUE PRODUCTIVITY LOOK MUCH BETTER THAN IT REALLY IS. WE THOUGHT THIS WAS DISINGENUOUS BECAUSE PUBLICLY THEY DON'T MAKE THOSE ARGUMENTS BUT THEY MADE THOSE ARGUMENTS PRIVATELY TO ISS AND UNFORTUNATELY, ISS ACCEPTED THOSE ARGUMENTS AND DIDN'T GIVE US A CHANCE TO REBUT THEM. AND I THINK THAT'S PARTIALLY WHY ISS DIDN'T SUPPORT ALL THREE OF OUR NOMINEES, THEY JUST SUPPORTED ME FOR THE BOARD. GLASS LEWIS, TO THEIR CREDIT, UNDERSTOOD THE ISSUE, DID THE PROPER ADJUSTMENT AND WEREN'T MISLED. AND SO, A LITTLE DISAPPOINTED HERE IN ISS.

KERNEN: READING SOME OF YOUR COMMENTS, YOU KNOW, I ALMOST FELT LIKE IT WAS GORDON GEKKO TALKING ABOUT TELDAR PAPER IN TERMS OF BUREAUCRACY. THERES – IN THE SPEACH HE SAYS, "THERE'S OVER 200 VICE PRESIDENTS ALL MAKING OVER $2 MILLION A YEAR. I DON'T EVEN KNOW WHAT THEY'RE DOING." YOUR ARGUMENT IS THAT ADP HAS LAYERS OF BUREAUCRACY. IT'S INSULAR, AND IT'S THEY'VE NEVER WORKED ANYWHERE ELSE, AND IT'S BEEN THAT WAY FOREVER. IS THAT PART OF THE PROBLEM?

ACKMAN: THERE'S A LOT OF TRUTH TO THAT. AND I'M FOCUSED ON THE TOP. THE TOP 12 EXECUTIVES IN THE COMPANY HAVE AN AVERAGE TERM AT THE COMPANY FOR 20 YEARS, AND THEY HAVEN'T WORKED ANYWHERE ELSE. IF YOU THINK ABOUT ADP'S BUSINESS, THIS WAS A PAYROLL COMPANY. IT WAS A PROCESSING COMPANY. IN THE LAST TEN YEARS AN INDUSTRY HAS DEVELOPED WHICH PEOPLE CALL HUMAN CAPITAL MANAGEMENT. IT'S SORT OF THE MANAGING YOUR RELATIONSHIP WITH YOUR EMPLOYEES. MANAGING BENEFITS, 401K PLAN, MANAGING THE RECRUITING PROCESS, MANAGING THE EXITING PROCESS TIME AND ATTENDANT SOFTWARE WHEN YOU HAVE EMPLOYEES AT BURGER KING, FOR EXAMPLE, AND YOU WANT TO TRACK THEIR EMPLOYMENT AT THE COMPANY. THAT'S BECOME AUTOMATED WITH NEW SOFTWARE, A LOT OF CLOUD-BASED COMPANIES LIKE WORKDAY HAVE BUILT PRODUCTS AND SERVICES TO ADDRESS THAT MARKETPLACE. ANYONE WHO WAS LATE TO THAT MARKET DIDN'T HAVE THE INNOVATION INTERNALLY TO COMPETE AND BOUGHT UP COMPONENTS OF PRODUCTS FROM SMALLER START-UP COMPANIES AND KIND OF PACKAGED THEM TOGETHER IN AN OFFERING. AND THAT OFFERING HAS NOT BEEN COMPETITIVE TO THE LIKES OF COMPANIES LIKE WORKDAY, AND WORKDAY HAS TAKEN HUGE MARKET SHARE FROM ADP FOR THEIR LARGER CUSTOMERS. AND WE THINK THAT IS, YOU KNOW, A DISAPPOINTING OUTCOME FOR THE BUSINESS. OUR TWO PRONGS ONE, THE COMPANY HAS BECOME BUREAUCRATIC AND INEFFICIENT, AND, TWO, THEY'VE MISSED THE BOAT ON TECHNOLOGY, AND THE BIG PART OF THAT IS THE INSULARITY OF THE SENIOR TEAM. THE CTO OF ADP IS NOT A TECHNOLOGIST. HE WAS A BUSINESS UNIT LEADER. HE WAS PROMOTED INTERNALLY. OUR UNDERSTANDING IS THAT THE COMPANY LOOKED OUTSIDE FOR CANDIDATES. THE KIND OF CTO THAT YOU WANT AT A BUSINESS SPENDING $860 MILLION A YEAR, THEY HAVE 9,000 PEOPLE IN THEIR TECHNOLOGY DEPARTMENT. THIS IS A MAJOR TECHNOLOGY COMPANY, AND THE TOP PERSON IN THE JOB IS A BUSINESS GUY AND NOT A TECHNOLOGY GUY.

WILFRED FROST: WOULD YOU NOT HAVE EXPECTED THEM TO LOSE MARKET SHARE TO NEW, MORE INNOVATIVE SMALLER COMPANIES ANYWAY? HOW MUCH MARKET SHARE IS ACCEPTABLE?

ACKMAN: SO TO GIVE YOU AN IDEA, ADP'S NATIONAL ACCOUNT BUSINESS USED TO BE 30% OF THE REVENUES IN THE COMPANY. TODAY IT'S DOWN TO 20% OF THE REVENUES OF THE COMPANY. IN THE LAST SIX OR SEVEN YEARS, REVENUES HAVE DECLINED IN AN INDUSTRY THAT'S GROWING RAPIDLY. I THINK THAT'S TOTALLY UNACCEPTABLE, AND THE REASON IS THESE COMPETITORS WITH TINY RESOURCES ARE COMPETING WITH A COMPANY WITH MASSIVE RESOURCES, AND IT'S YOU SEE THIS -- YOU KNOW, YOU LOOK AT BUSINESSES THINK ABOUT KODAK, RIGHT KODAK HAD SUCH A DOMINANT MARKET POSITION, IT WAS SO PROFITABLE THAT THEY BECAME COMPLACENT, AND INNOVATIVE COMPANIES INNOVATED WITH DIGITAL TECHOLOGY AND KODAK IGNORED IT, THEY WERE COMPLACENT, AND KODAK DIED. ADP IS NOT WHERE KODAK IS TODAY, BUT THEY'RE AT RISK IF THEY DON'T INNOVATE AND COMPETE, AND THEY HAVE A HUGE INCUMBENCY. THEY HAVE AN EXISTING CUSTOMER BASIS – THEY'VE HAD CLIENTS THEY'VE HAD FOR DECADES THAT THEY'RE LOSING TO COMPANIES -- > >

MELISSA LEE: IS THE BEST PUBLICLY TRADED BRANCH PAYCHEX?

ACKMAN: PAYCHEX IS THE ONLY TRULY MATURE COMPETITOR. BUT AGAIN, THE RIGHT WAY TO BENCHMARK PAYCHEX IS JUST AGAINST ADP'S SMALL AND SMALL MID-MARKET CUSTOMERS. THAT'S THE FAIR COMPARISON. IT'S NOT FAIR TO COMPARE PAYCHEX AGAINST THE ENTIRE ADP. SO WHAT WE'VE DONE IS WE'VE SAID THERE ARE COMPANIES THAT COMPETE WITH ADP IN THE SMALL MARKETPLACE, THERE ARE COMPANIES THAT COMPLETE IN THE MIDMARKET, THERE ARE COMPANIES THAT COMPETE WITH ENTERPRISE CUSTOMERS, THERE ARE COMPANIES THAT COMPETE INTERNATIONALLY. WE'VE TAKEN – THERE'S NO ONE THAT COMPETES ACROSS THE FULL SPECTRUM.

LEE: SO ON THAT BASIS HOW IS IT ---

ACKMAN: ONE SECOND. THE WAY THEY – WHAT WE'VE DONE, WE'VE SAID, LOOK, 35% OF THE REVENUES OF THEIR EMPLOYEE SERVICES BUSINESS -- PAYCHEX DIRECTLY COMPETES. SO THEY SHOULD EARN SIMILAR MARGINS TO PAYCHEX. IN THE MIDMARKET, PAYCOM, PAYLOCITY IN THE ENTERPRISE SPACE, THEY COMPETE AGAINST ULTIMATE SOFTWARE, WORKDAY, AND OTHERS. WHEN YOU COMPARE AGAINST THE BENCHMARKS, IT BECOMES CLEAR THAT THE EMPLOYEE SERVICES SHOULDNT BE 19%, THEY SHOULD BE MORE LIKE 35%. AND EMPLOYEE SERVICES IS THE VAST MAJORITY OF THEIR BUSINESS. SO WHEN THAT TRANSLATES INTO THE OPERATING MARGINS OF THE WHOLE COUNTRY, THE MARGIN SHOULD BE 60% HIGHER THAN WHERE THEY ARE, AND THAT IS AN UNACCEPTABLE NUMBER?

FROST: BUT IT'S FAIR TO SAY THAT ECONOMIES OF SCALE SHOULD DELIVER BETTER MARGINS IN A SECTOR THAT'S NOT BEING THREATENED BY NEW TECHNOLOGY. BUT TECHNOLOGY HAS ENABLED DISRUPTION, AND IT'S SHOWN THAT IT CAN TAKE THE BIGGER COMPANIES TIME TO CHANGE DIRECTION. PERHAPS REPLACE WORKERS WITH THIS NEW TECHNOLOGY, AND THAT WAS A – A LATER STAGE COMPANY UNDER THREAT IN THAT SENSE IT HAS TO DEAL WITH THAT. IN WHAT SENSE DOES THAT APPLY HERE AND IN WHAT SENSE DO YOU THINK THEY'RE ALLOWED A BIT OF TIME TO CATCH UP AND WILL IT LEAD TO FIRING WORKERS IN ORDER TO REPLACE THEM WITH TECHNOLOGY?

ACKMAN: ONE OF THE THINGS THAT HAPPENS IN A PROXY CONTEST IS EVENTUALLY THE CEO COMES OUT AND STARTS TO SCARE EMPLOYEES. THAT IF PERSHING SQUARE WINS, THOUSANDS OF JOBS WILL BE LOST. AND I THINK THE BEST EXAMPLES WE GIVE ARE SO THAT'S NOT THE CASE, AND THERE ARE NO -- WE WOULD HAVE NO PLANS TO FIRE LOSS OF WORKERS. IF YOU TAKE A LOOK AT PAYCHEX, PAYCHEX GENERATED ABOUT THE SAME REVENUE PER EMPLOYEE OF ABOUT 160,000 EMPLOYEE UP UNTIL SIX OR SEVEN YEARS AGO, AND THEN THEY USE TECHNOLOGY VERY EFFECTIVELY, AND THEIR EMPLOYEE HEAD COUNT CONTINUED TO GROW BUT AT A SLOWER PACE THAN REVENUES, AND NOW PAYCHEX IS GENERATING $280,000 PER EMPLOYEE. FORTUNATELY, THIS IS A GROWING INDUSTRY IT'S NOT A DYING STEEL BUSINESS IN THE MIDWEST. YOU THINK OF THAT IN THE PAST WHERE THERE HAVE TO BE LARGE SCALE LAYOFFS BECAUSE THE BUSINESS IS DECLINING. THE BIGGEST RISK TO ADP'S EMPLOYEES ARE THE COMPETITIVE THREATS FROM COMPANIES LIKE WORKDAY. AND IF THE COMPANY DOESN'T INNOVATIVE, DOESN'T LAUNCH A COMPETITIVE MARKET, THEY'RE GOING TO LOSE SIGNIFICANT MARKET SHARE IN THAT PART OF BUSINESS. ONE OF THE EXAMPLES WE GIVE, WHICH IS A POWERFUL ONE, IS WHEN YOU LOOK AT BUSINESSES THAT ADP HAS SOLD, AFTER THEY'RE NO LONGER OWNED BY ADP, THE BUSINESSES DO MUCH BETTER. SO THERE'S A COMPANY CALLED CDK IT'S A PUBLIC COMPANY. WE SPUN OFF OF ADP THREE YEARS AGO. IT WAS WHAT THEY CALLED THEIR DEALER SERVICES BUSINESS. IT WAS ALMOST 20% OF THE REVENUES OF THE COMPANY. THEY SPUN IT OFF TO SHAREHOLDERS. THEY CHANGED THE NAME ON THE DOOR. THE SHAREHOLDERS CHANGED. THERE WAS A NEW BOARD PUT IN PLACE. THE SAME MANAGEMENT RAN THE COMPANY, AND THEY'VE TAKEN MARGINS FROM 16% TO 26% IN THREE YEARS ON THEIR WAY TO 35%. SO THERE'S—

 FROST: WOULDN'T YOU HAVE A BETTER CHANCE IF YOU OWNED ALL -- HOW MUCH -- YOUVE GOT 8.3% BUT MOST OF ITS DERIVATIVES. ADP POINTS OUT IF YOU HAD CONVERTED IT, IF IT WAS ALL COM, AND YOU COULD VOTE OVER 8%, WOULDN'T THAT HELP IN YOUR PROXY BATTLE WHY HAVEN'T YOU? WHY IS IT ALL DERIVATIVE?

ACKMAN: IT'S NOT ALL DERIVATIVE. WE ARE ONE OF THE BIGGEST SHAREHOLDERS OF THE COMPANY. WE OWN 2%. THAT MAKES US THE NINTH LARGEST SHAREHOLDER OF THE COMPANY WERE THE THIRD LARGEST INVESTOR IN THE COMPANY IN TERMS OF CAPITAL THAT WE'VE INVESTED. WE CAN'T VOTE SHARES -- SO WE OWN SOME OF OUR SHARES THROUGH 55 AND 56 STRIKE OPTIONS, WITH THE STOCK AT 150, IT'S EFFECTIVELY A WAY FOR US TO FINANCE PART OF THE DECISION. OTHERWISE WE WOULD HAVE TO PUT UP ANOTHER COUPLE OF HUNDRED BILLION DOLLARS AND IT WOULD BE DISPROPORTIONATELY LARGE. WE'RE RELYING ON THE VOTE OF OTHER SHAREHOLDERS TO LEAD. WE'RE NOT GOING TO WIN WITH 2%, WE'RE NOT GOING TO WIN WITH 8%, WE'RE NOT GOING TO FORCE THIS THROUGH. WE'RE GOING TO WIN BECAUSE WE HAVE THE BETTER IDEAS ON HOW TO FIX THIS.

KERNEN: YOU'LL STAY, WE'RE GOING TO SLIP IN A QUICK BREAK.

LEE: WE'LL HAVE MUCH MORE WITH BILL ACKMAN STRAIGHT AHEAD WHEN "SQUAWK BOX" COMES RIGHT BACK. STAY TUNED.

LEE: LET'S GET BACK TO OUR SPECIAL GUEST, BILL ACKMAN, THE FOUNDER, CEO AND PORTFOLIO MANAGER AT PERSHING SQUARE CAPITAL MANAGEMENT. BILL, GREAT TO HAVE YOU HERE. WE'RE TALKING ABOUT ADP. THE VOTE IS NOVEMBER 7th. YOU MENTIONED THAT YOU'RE THE NINTH LARGEST SHAREHOLDER. HAVE YOU HAD DISCUSSIONS WITH SHAREHOLDERS ONE THROUGH EIGHT, AND WHAT'S YOUR SENSE OF WHERE THAT CONTEST STANDS RIGHT NOW?

ACKMAN: YEAH. WE'VE, SO, OF COURSE, I'M MEETING WITH ALL THE BIG SHAREHOLDERS. AND WE'RE ALSO DOING OUR BEST TO REACH OUT TO THE RETAIL SHAREHOLDERS HERE. THEY'RE – 28% OF THE STOCK ARE HELD BY SMALL INDIVIDUAL INVESTORS, AND THEY'RE GOING TO PLAY A VERY IMPORTANT ROLE HERE. SO WE DID ACTUALLY OUR FIRST CONFERENCE CALL EVER FOR THE INDIVIDUAL INVESTOR WE DID IT AT 7:00 AT NIGHT, WE DID A WEBCAST. AND YOU KNOW, IT'S VERY, VERY IMPORTANT AUDIENCE.

FROST: DOES PERSHING SQUARES OWN RECENT RELATIVE UNDERPERFORMANCE MAKE IT HARDER FOR YOU TO CONVINCE THOSE SHAREHOLDERS THAT \YOU WILL DELIVER ON THE PROMISES?

ACKMAN: WHAT SHAREHOLDS ARE FOCUSED ON IS THERE A MARGIN OF ADP? WOULD ADDING A MAJOR SHAREHOLDER TO THE BOARD INCREASE THE PROBABILITY THAT THAT OPPORTUNITY IS IDENTIFIED? WOULD ADDING TWO DIRECTORS WITH SIGNIFICANT OPERATIONAL EXPERIENCE TO THIS BOARD BE HELPFUL? AND TWO, HAS THE COMPANY MISSED THE MARKET IN TERMS OF THEIR NATIONAL ACCOUNT OR ENTERPRISE BUSINESS? AND I THINK WIDELY THROUGHOUT THE SHAREHOLDER BASE, PEOPLE THINK THERE'S A BIG MARGIN OPPORTUNITY, AND ACTUALLY SANDRA BERNSTEIN DID A SURVEY OF INVESTORS. THAT'S THE BEST INDICATOR WE HAVE, AND MORE THAN 80% SAID ONE -- THE PRESSURE WE'RE PUTTING ON THE COMPANY IS POSITIVE, TWO, THAT THEY BELIEVE THERE'S A SIGNIFICANT MARGIN OPPORTUNITY, AND THREE, THAT THE COMPANY WOULD BENEFIT BY ONE OR MORE OF OUR DIRECTORS.

FROST: DO YOU FEEL THIS BATTLE IS A CRUCIAL ONE FOR YOUR LONG-TERM FUTURE I MEAN, THERES 25% OF U. M. EXPOSED IN ADP AND CLEARLY, YOU PROMISED BETTER SHARE PRICE PERFORMANCE GOING FORWARD, SO DO YOU FEEL YOU HAVE TO DELIVER ON THIS ONE GIVEN 2015 AND 2016s UNDERPERFORMANCE?

ACKMAN: ITS CERTAINLY AN IMPORTANT INVESTMENT FOR US. IT'S ONE OF THE LARGEST INVESTMENTS WE'VE MADE. THE STOCK IS UP ABOUT ALMOST $20 A SHARE, SINCE KIND OF, VERSUS THE UNEFFECTED PRICE AS A RESULT OF OUR INVOLVEMENT. WHAT WE LIKE ABOUT IT IS HIGH QUALITY, SAFE, UNLEVERED BUSINESS, AND WE THINK THE DOWN SIDE IS LIMITED, AND WE THINK THE UPSIDE IS VERY SUBSTANTIAL. YOU KNOW –

KERNEN: WAS THE MONEY WELL SPENT IN BUYING BACK SOME OF THE PERSHING SQUARE STOCK?

ACKMAN: YES.

KERNEN: IT WAS. BECAUSE SOME SEVERAL PEOPLE THINK THAT IT'S DOWN, AND – YOU ACTUALLY – UNDER WATER ON THAT INVESTMENT.

ACKMAN: THERE'S SOME LIMITATIONS ON OUR ABILITY TO TALK ABOUT THIS PUBLICLY TRADED ENTITY, BUT BUYING BACK STOCK AT A DISCOUNT TO THE NET ASSET VALUE IS ALMOST ALWAYS A GOOD THING TO DO.

KERNEN: BOTH ADP AND PERSHING SQUARE TALK ABOUT PLANS TO INCREASE MARGINS. I THINK BOTH SAY THAT THE OTHER -- THE PLAN IS FLAWED OR -- WHAT IS YOUR PROBLEM WITH ADP'S PLAN? IT'S A THREE-YEAR PLAN

ACKMAN: IT'S JUST NOT AMBITIOUS ENOUGH.

KERNEN: NOT AMBITIOUS ENOUGH?

ACKMAN: THE COMPANY'S PLAN IS TO TAKE MARGINS FROM 20% TODAY TO 21% OR 22% IN THREE YEARS 100 TO 200 BASIS POINTS. OVER THE NEXT THREE YEARS WE THINK MARGINS CAN GO FROM 20% TO 32% BY BEGINNING OF YEAR FIVE. AND A FAIRLY STEADY MARCH UPWARD NOT DISSIMILAR TO WHAT'S BEEN ACHIEVED AT CDK. ADP'S FIRST RESPONSE TO US IS TO SAY SAY WE DIDN'T DO OUR HOMEWORK, WE DIDN'T KNOW ANYTHING ABOUT THE COMPANY. THEY'VE HEARD FROM SHAREHOLDERS THAT OUR IDEAS ARE RESONATING. THEYR'E NOW PIVOTING TO A MESSAGE AND THEY START TALKING ABOUT A NUMBER OF 5%. IT'S A FICTITIOUS NUMBER THEY HAVEN'T BEEN WILLING TO SUPPORT IT, THEY DON'T SHOW ANY EVIDENCE FOR IT. BUT IN THEIR WRITTEN MATERIALS, THEIR GUIDANCE FOR SHAREHOLDERS IS 100 TO 200 BASIS POINTS OVER THREE YEARS. AND WHILE THEY'RE TALKING QUALITATIVELY ABOUT ALL THE RIGHT THINGS, "YES, WE'VE GOT TO IMPROVE OUR TECHNOLOGY" – THEY'RE SAYING THAT NOW, "YES WE'VE GOT TO IMPROVE OUR PRODUCTIVITY AND OUR MARGINS," – THEY'RE SAYING THAT BUT IN WHAT THEY'RE PROMISING INVESTORS, THEY'RE NOT SHOWING ANY PROGRESS BEYOND THE NORMAL OPERATIONAL LEVERAGE THE BUSINESS SHOWS WITH GROWTH.

KERNAN: WOULD THERE BE -- I MEAN, YOU POINT OUT AS YOU HAVE IN A LOT OF THE SITUATIONS YOU'VE BEEN INVOLVED IN, THERE'S REAL ESTATE THAT THEY DON'T EVEN NEED.

ACKMAN: THERES REAL ESTATE EVERYWHERE. THIS IS A REMARKABLE THING ABOUT THE COMPANY, THAT THEY OPERATE AT A TEN MILLION SQUARE FEET. THAT'S THE EQUIVALENT OF TWO WORLD TRADE CENTER TOWERS. BUT THOSE LOCATIONS ARE SPREAD -- THERE ARE 130 OF THEM AROUND THE COUNTRY. AND IT'S, AGAIN, IT'S A VESTAGE OF THE COMPANYS HISTORY. IF YOU THOUGHT ABOUT THE OLD DAYS, THIS WAS A PAYROLL PROCESSING COMPANY. YOU TAKE YOUR MAGNETIC TAPE. YOUR CFO WOULD HOP IN THE CAR, DRIVE, IT OR THE EMPLOYEE WOULD DRIVE IT TO A SERVICE BUREAU. THEY WOULD GENERATE A CHECK RUN. THE CHECKS WOULD GO BACK TO CORPORATE AND, YOU KNOW, IT USED TO BE FUN IN THE OLD DAYS THE GUY WOULD HAND YOU YOUR PAYMENT. THEY STILL HAVE THE 130 OFFICES AND THEY HAVE 80 OR 100 PEOPLE OPERATING OUT OF IT. THINK HOW INEFFICIENT THE BUSINESS -- TO RUN A BUSINESS LIKE THAT. A COMPANY LIKE WORKDAY MIGHT HAVE TWO OR THREE OFFICES WHERE, IT DOESN'T OPERATE OUT OF 130. IT MAKES NO SENSE. ADP HAS A MASSIVE SALES FORCE AND SALES GROWTH HAS BEEN -- EMPLOYEE SERVICES -- LAST YEAR WAS AT 4%. THEYRE PROJECTING 2% TO 3%. THE CONVEY THEYRE TRYING TO SOLVE THE PROBLEM IS BY ADDING MORE SALESPEOPLE. AND WE'RE HEARING FROM ADP SALESPEOPLE. AND WHAT THEY'RE TELLING US, SALESPEOPLE DON'T LIKE IT WHEN YOU KEEP ADDINING MORE AND MORE SALESPEOPLE AND TAKING – SQUEEZING GEOGRAPHY. THE PROBLEM IS NOT THE SALESFORCE, THE SALESFORCE IS EXCELLENT. THE PROBLEM IS THEIR CORE ENTERPRISE PRODUCT. THEY DO NOT HAVE A COMPETITIVE PRODUCT, AND YOU CAN HAVE THE BEST SALESPERSON IN THE WORLD, BUT IF YOU DON'T HAVE A GOOD PRODUCT, YOU CAN'T SELL IT.

LEE: AT THE SALT HEDGE FUND CONFERENCE, YOU GIVE VERY HUMBLING SPEECH AND BASICALLY SAID THAT YOU'RE "POISED FOR A COMEBACK, EFFECTIVELY," "IT'S BEEN A HUMBLING YEAR," ET CETERA. ARE YOU ON THAT COMEBACK, DO YOU FEEL?

ACKAMN: SURE. SO WE'VE AGAIN, IT DEPENDS ON HOW YOU – IF YOU COULD MOVE THE CALENDAR YEAR SLIGHTLY, WE HAD A VERY DIFFICULT TWO-YEAR PERIOD OF TIME BUT THE LAST, YOU KNOW, ALMOST 12 MONTHS, WE'VE MADE MEANINGFUL PROGRESS. I'M SORRY, LAST SEVERAL MONTHS WE'VE MADE MEANINGFUL PROGRESS OFF THE BOTTOM. SO WE ARE WELL OFF THE BOTTOM, MORE THAN 20% OFF THE BOTTOM. WE ARE JUST TURNED POSITIVE FOR THE YEAR, WHICH IS PROGRESS, BUT WE HAVE A WAYS TO GO. AND WE'RE WORKING HARD TO MAKE THAT HAPPEN BUT I LIKE OUR PORTFOLIO AND I LIKE OUR INVESTMENTS. ADP IS AN EXTREMELY ATTRACTIVE RISK REWARD. WE DID SOMETHING INTERESTING – I KNOW WE HAVEN'T TALKED ABOUT THIS IN A LONG TIME, BUT WE'VE BEEN ENTIRELY RIGHT ON OUR HERBALIFE INVESTMENT IN TERMS OF FUNDAMENTALS OF THE BUSINESS, WE'VE BEEN WRONG ON THE SHARE PRICE. AND A BIG PART OF THAT IS THE FACT THAT COMPANIES REPURCHASED A HUGE AMOUNT OF SHARES, ABOUT 30% OF SHARES OUTSTANDING. CARL'S BOUGHT ABOUT 20 SOMETHING OF THE SHARES OUTSTANDING. A BIG PART OF THIS IS TRYING TO CAUSE A SHORT SQUEEZE.

KERNEN: -- CARL. ICAHN.

ACKMAN: WHAT WE DID WAS -- SO I THINK PEOPLE -- MR. ICAHN'S THOUGHT WAS, THE MARKET THINKS WE WERE GOING TO FORCED TO COVER A HUGE AMOUNT OF SHARE. AND WHAT WE DID RECENTLY IN THE LAST FEW WEEKS IS WE CONVERTED OUR ENTIRE OUR ENTIRE SHORT POSITION INTO A PUT POSITION AND AS A RESULT WE CAN NO LONGER – THERE'S NO LONGER AN OPPORTUNITY TO SQUEEZE PERSHING SQUARE. WE HAVE TODAY WHAT IS TODAY A MODEST INVESTMENT. AND ULTIMATELY THE FUND INVESTMENTS WILL PROVE RIGHT. I LOOKED AT THE PORTFOLIO, WHETHER IT'S THINGS THAT HAVE HURT US, LIKE HERBALIFE. I THINK WE'RE WELL POSITION.

KERNEN: DO YOU LOOK AT PENNY'S SHARE PRICE? MAYBE RON JOHNSON WAS ON TO SOMETHING. A GUY SAID TO ME EARLIER, MAYBE RON JOHNSON WAS A GUY WHO COULD - WE DON'T KNOW THE KIND OF FACTUAL.

ACKMAN: RON JOHNSON WAS A VERY SMART, CAPABLE LEADER AND HAD HAD A LOT OF VERY GOOD IDEAS AND, UNFORTUNATELY, THE COMPANY DID NOT HAVE PATIENCE FOR THOSE IDEAS.

KERNEN: LOOK AT MACY'S, MACY'S IS—

ACKMAN: IT'S SAD WHAT HAS HAPPENED TO RETAIL. LOOK, THE HEADWINDS ARE SO ENORMOUS THAT IT'S VERY DIFFICULT. AGAIN TO GET BACK TO THE ADP SITUATION. YOU THINK OF A COMPANY LIKE MACY'S, SO DOMINANT, THEY HAVE BECOME A LEGACY COMPANY BECAUSE THEY HAVEN'T INNOVATED AS QUICKLY AS AMAZON. THIS IS WHAT WE DON'T WANT TO HAPPEN TO THE ADPS OF THE WORLD.

FROST: ARE WE COMING INTO THE GOLDEN AGE OF ACTIVISM, RIGHT NOW? THERE'S MORE HAPPENING. DOES THAT PROVIDE MORE OPPORTUNITY FOR YOU IN THE MEDIUM TERM?

ACKMAN: SO I THINK IT'S A BIFURCATION OF THE MARKET. THERE'S MORE AND MORE MONEY BEING MANAGED PASSIVELY, SO IT'S MORE IMPORTANT FOR THE ACTIVISTS OF THE WORLD TO PUSH CORPORATIONS BUT THE ACTVISITS ARE NOT SUCCESSFUL WITHOUT THE SUPPORT OF THE MAJOR SHAREHOLDERS.

LEE: QUICKLY BACK TO HERBALIFE BEFORE WE GO, HOW BIG IS THAT POSITION AT THIS POINT?

ACKMAN: SMALL.

LEE: SMALL IN TERMS OF THE DOLLAR YOU'VE SPENT?

ACKMAN: 3% OF CAPITAL.

LEE: 3% OF YOUR CAPITAL.

ACKMAN: 3% OF CAPITAL BUT BECAUSE IT'S IN THE FORM OF DERIVATIVES, THE UPSIDE IS GREAT AND WE DON'T HAVE THESE RISKS ASSOCIATED WITH THE SHORT SQUEEZE.

KERNEN: BILL ACKMAN, GREAT TO HAVE YOU BACK ON "SQUAWK BOX." IT'S BEEN AWHILE. ANYWAY, THANK YOU. YOU GOT EXTENDED TIME HERE.

ACKMAN: I DIDN'T KNOW THE ADDRESS YOU MOVED.

KERNEN: AREN'T YOU NEARBY? WE'RE CLOSE. DON'T BE A STRANGER. THANK YOU.

For more information contact:

Jennifer Dauble
CNBC
t: 201.735.4721
m: 201.615.2787
e: jennifer.dauble@nbcuni.com

Emma Martin
CNBC
t: 201.735.4713
e: emma.martin@nbcuni.com

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