Shareholders Support Target in Blow to Ackman
By Zachery Kouwe and Joe Nocera
New York Times
Thursday, May 28, 2009
Shareholders of the retail giant Target delivered a stinging
defeat to the activist investor William A. Ackman on Thursday,
re-electing all of the company’s nominees to the board in one of
the most closely watched proxy contests of the season.
Preliminary results from Target’s annual meeting, which is being
held at an unfinished Target store in
Wis., showed that 70 percent of
the votes cast were in support of the incumbent board members.
Shareholders also voted for the company’s plan to fix the number
of directors at 12. Mr. Ackman had wanted to expand the
board to 13.
Mr. Ackman, whose Pershing Square Capital Management is Target’s
third-largest shareholder, nominated himself and four others to
the board in March, saying the current directors lacked relevant
experience in real estate, retail and credit card business.
“No matter whether we win or whether we lose, I think we’ve
forever changed governance at Target in a positive way,” Mr.
Ackman said on CNBC before the meeting. During the
meeting, Mr. Ackman gave a five-minute speech on the importance
of shareholder democracy, invoking the Rev. Dr. Martin Luther
King Jr. and President John F. Kennedy.
Target’s chairman, Gregg Steinhafel, thanked shareholders for
their support. “Today’s outcome demonstrates the
confidence Target shareholders have in our board’s
qualifications, diversity and experience to provide effective
and independent oversight and direction to the company,
contributing to the creation of one of the most recognized
brands in the United States,” he said in a statement.
After the meeting, Mr. Ackman said he expected to hold onto his
Target shares for the foreseeable future, but reserved the right
to change his mind.
Before starting the proxy fight, Mr. Ackman pushed Target to
spin off the land underneath its stores into a separate real
estate investment trust and sell its entire portfolio of credit
Last year, Target took his advice and sold about half of its
credit card exposure to JPMorgan Chase, but rejected the real
estate plan, saying it was too risky and would put the company a
in tough financial position. Earlier this year, Mr. Ackman
approached the company with three director nominees, but they
were rejected by the board’s nominating committee.
The meeting marks the end of one of the most contentious and
expensive boardroom contests in modern corporate history and has
added fuel to the continuing debate over how much influence big
shareholders like Pershing should have over a company’s
On one side are corporate boards, who believe activist
shareholders, especially of the hedge fund variety, distract
management from running the business and only offer ideas meant
to increase the stock price in the short term.
On the other side are activists like Mr. Ackman and corporate
governance experts who argue that many corporate boards are
resistant to change and do not always act in the best interests
The debate has been played out throughout the three-month proxy
fight as Target painted Mr. Ackman as a short-term speculator
with risky ideas. Mr. Ackman said his investment was for
the long term, noting he has held shares for more than two years
and pledging not to sell his personal stake for five years if he
was elected to the board.
“Mr. Ackman’s preferred method of enhancing shareholder value
usually involves higher leverage, lower credit quality and some
form of financial engineering,” Carol Levenson, a bond analyst
with Gimmie Credit, wrote earlier Thursday. “This battle
couldn’t have come at a worse time, when the company is also
trying to deal with a grim retailing environment and a
deteriorating credit card portfolio.”
The two sides have spent at least $25 million for high-priced
lawyers, bankers, public relations advisers and proxy
solicitors, not to mention valuable time trying to convince
shareholders of their respective positions. Critics of Mr.
Ackman argue the proxy fight has been a distraction to Target’s
management, which should be focused on competing against its
main rival, Wal-Mart.
But Mr. Ackman has insisted that Target’s board needs fresh
blood in order for the company to realize its full potential.
– Zachery Kouwe and Joe Nocera