Ceridian Corporation (NYSE:CEN) shares moved up $1.36, or 4.85%, to $29.42 today on news that Bill Ackman's Pershing Square has taken a more activist stance in its investment. The 11.3% holder also disclosed a letter in their Schedule 13D filing with the SEC that expressed concern about a number of recent developments, particularly the departure of key Comdata personnel and a change in the company's strategic direction. Consequently, the hedge fund recommended that the company spin off Comdata to shareholders and focus on improving Ceridian's remarkably low margins, lackluster customer service, weak sales force, and poor technological infrastructure. Finally, Pershing Square announced their intention to nominate their own slate of directors to the company's board in order to enforce these changes and deliver shareholder value.

Why does a spin off of Comdata make sense for shareholders? Well, we must first remember that spin offs in general tend to outperform the overall market due to the way in which they are structured. Often times, parent company shareholders tend to immediately sell shares they are granted in the new spin off. Consequently, there is unjustified downside pressure on the new company's stock, which creates value for the enterprising investor. Aside from this fact, the separation of Comdata from Ceridian also makes a lot of sense. The two businesses share almost no synergies and are even located in different geographical locations. Moreover, Ceridian's poor performance has been a drag on Comdata's exemplary performance - a major contributing factor to Comdata's managements' possible departure from the company.

The spin off of Comdata would also provide Ceridian with a pile of cash that they could use to improve their own operations. The transaction would also allow Ceridian to unload some of its long-term debt on to the new entity (a common practice in spin off scenarios). Combined, the cash and savings generated from this transaction would allow Ceridian to institute changes aimed at improving the company's low margins, customer service, sales force, and technological infrastructure. Also, given Bill Ackman's history, he may decide to petition to the company to issue a special dividend to return some of this money to shareholders.

Overall, this is a great opportunity for investors to catch a ride with Bill Ackman, who is one of the most successful activist investors of our time; CEN is definitely a stock to watch as the January 23rd proxy deadline approaches.

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