A Cool Card Trick by Mark Veverka
Summary: Activist shareholder William Ackman is up 20% on his 11% Ceridian (CEN) stake, but what he's really after is a spin-off of data/payroll processor Ceridian's Comdata unit, specifically its Stored Value Systems which manufactures 'closed-loop' plastic gift cards for retailers like J.C. Penney and Godiva. Electronic fund transfers were a $50 billion business in 2005, and Mercator Advisory's Tim Sloane sees it doubling. Stored Value loaded $20b onto cards in 2005, on operating margins of about 30%. But payroll cards, where companies can pay their employees with plastic, promise to be the next rave. With $6.3b 'plastic' payroll payments in 2005, Sloane sees $52b in salary cards by 2009. Spin-off shareholder value potential abounds: 1) Comdata is already probably worth all of Ceridian's $4.2b market cap on its own.2) The payroll market is exploding, Comdata could do payroll for Ceridian and even competitors like Automatic Data Processing (NASDAQ:ADP). 2) It's a logical takeover target for American Express (NYSE:AXP) or Master Card (MC-OLD). 3) Operational improvements at Ceridian's HR services unit will grow revenues too. Barron's Bottom Line: If Ceridian is split up, investors could reap another 20% -- or far more.
Related Links: Ceridian: 11.3% Holder Ackman Proposes Board Nominations; Hedge Fund Perishing Square Capital Discloses Active Stance in Ceridian; Activist Hedge Fund Manager Ackman Accumulates Ceridian (CEN) Stake