Comdata parent calls shareholder concerns 'unfounded'

Ceridian delivers chilly response to activist holder who did battle with McDonald's last year, but concedes that Brentwood's Comdata may be spun off

Email | Print By E. Thomas Wood

Comdata chief Gary Krow is not going anywhere, says the CEO of Ceridian Corp., which owns the Brentwood company.

Ceridian Corp., parent of Brentwood-based financial processor Comdata Corp., shot back this morning in reply to the salvos an activist shareholder fired at it last week.

The CEO of Minneapolis-based Ceridian, Kathryn V. Marinello, has sent a letter to New York hedge fund Pershing Square Capital Management to counter assertions, made in a letter sent to the Ceridian board on Thursday, that Ceridian was pursuing a flawed conglomerate strategy, was about to run off its top talent at Comdata and ought to spin off Comdata into a separate company. The contents of both letters were released in Securities and Exchange Commission filings.

"We were very surprised by the concerns expressed in your letter, which we believe are unfounded and unwarranted," Marinello writes. She denies that the company has any intention of embarking on an "acquisition-driven conglomerate strategy." And she dismisses Pershing Square's worry that Comdata President Gary Krow might be on his way out.

"Our Board and I have expressed to Mr. Krow our support of him, and he has expressed to us his desire to continue to run Comdata with the objective of improving what is already a strong competitor in the transaction processing arena," Marinello writes. "While no company can ever guarantee that any particular executive will remain with the company forever, we believe your fear that Ceridian 'may be on the verge of losing' Mr. Krow is as unfounded as your other stated concerns."

Marinello does leave open the possibility of a spin-off of Comdata, revealing that the parent company has hired an unnamed financial advisor to help it "undertake a new full review" of its strategic options, including such a possible divestiture.

For Ceridian, though, detaching Comdata would mean losing its cash cow. In the first three quarters of Ceridian's fiscal 2006, Comdata accounted for only 30 percent of the parent's revenue, but its $113.6 million in earnings before interest and taxes amounted to 65 percent of Ceridian's total.

Pershing Square just disclosed its 11.3 percent stake in Ceridian last month, having acquired most or all of the shares recently, according to information on file at the SEC. Led by investor Bill Ackman, the fund has made news in the past couple of years with several high-profile challenges to corporate leadership teams.

After buying up a large block of McDonald’s Corp. stock, Ackman began agitating last summer for the burger chain to spin off many of its restaurant properties into a separately traded company, to pay out more in dividends and to buy back more of its stock. McDonald’s came back at Ackman with much the same bravado Ceridian is now showing, but in the end, management agreed to sell some 20 percent of the company's restaurants and to repurchase about $1 billion in stock.

Earlier in 2006, Pershing Square was involved in efforts to squeeze more shareholder value out of Toronto-based Sears Canada, and in 2005 it forced another fast-food chain, Wendy's, to spin out part of its Tim Hortons unit and take other steps to sweeten the pot for shareholders.

Pershing Square said in its letter last Thursday that it will nominate an alternative slate of directors to stand for election in Ceridian's next stockholder meeting. Any such nominations would be due by tomorrow, January 23rd.