ADP to Spin Off Auto-Dealer Unit to Focus on Human Resources

Apr 10, 2014 4:13 pm ET

(Updates with closing share price in last paragraph.)

April 10 (Bloomberg) -- Automatic Data Processing Inc., the payroll-and-benefits provider whose monthly jobs report is a U.S. economic barometer, plans to spin off its auto-dealer services unit to focus on the human-resources business.

The tax-free spinoff, to be completed by the end of the year, will produce at least $700 million for ADP, according to a statement today. The Roseland, New Jersey-based company will use the money to repurchase its own shares.

The automotive unit, which offers sales and marketing technology for dealers and manufacturers, increased revenue last fiscal year by 9.2 percent to $1.81 billion. That outpaced the company’s total sales growth of 6.5 percent to $11.3 billion. While the division offers potential for growth as the auto industry recovers, ADP’s board decided a separation would let each company’s executives develop their strategies independently.

ADP was stripped of its top AAA credit ratings by Standard & Poor’s and Moody’s Investors Service after the spinoff was announced. S&P cut its grade two levels to AA, citing ADP’s plan to use the proceeds to buy back stock, while Moody’s lowered its ranking one step to Aa1, saying the diminished scale of operations and variety of ADP’s products increases the company’s credit risk.

“The rating downgrade reflects ADP’s more narrowly focused business profile, with the company’s operations now entirely devoted” to employee services, S&P analyst Jacob Schlanger said in a statement today.

ADP pays about one in six workers in the U.S. and administers health-care benefits for 15 million Americans. The company reported earnings and sales in February that beat estimates, helped by new clients and additional services.

Shares of ADP fell 0.9 percent to $75.22 at the close in New York today. The stock has declined 6.9 percent this year.