Proxy battle looms for Target Corp. as board rejects Pershing proposal

MINNEAPOLIS A battle is brewing for control of Target Corp.

Venture capitalist William “Bill” Ackman, founder and CEO of investment and hedge fund firm Pershing Square, has announced to the chagrin of Target’s board and management that he shortly will wage a proxy battle for control of the upscale discount-store giant. An activist investor known to be impatient with Target’s stock-growth performance, Ackman gained notice earlier in the decade for his occasionally successful attempts to wield influence and build shareholder value at McDonald’s, Wendy’s and Ceridian, after building shareholder stakes in those firms.

Ackman, who once called Target “probably the best retailer in the world” in an interview with Bloomberg news service, said he intends to nominate five representatives for election to Target’s board of directors at the company’s annual meeting of shareholders May 28. His announcement follows Target’s rejection of his bid for two seats on the board; and caps nearly two years of on-and-off negotiations between the 1,699-store chain and Ackman, whose firm has reportedly accumulated roughly 10% of Target’s stock since April 2007.

Among other goals, Ackman is seeking to force Target’s board to squeeze more value from its real estate holdings and possibly spin off its credit card business, according to reports.

“Pershing Square's main focus appears to generally influence a well-run company to monetize non-core assets, underperforming assets, and ‘hidden’ assets, utilizing the free cash to fund share repurchases and/or increase dividend payouts,” noted Amit Chokshi in a report on the company on the Seeking Alpha website.

Responding today to Ackman’s bid, Target’s board and management firmly rejected his proposals.

“We are disappointed that Pershing Square has decided to pursue a costly and disruptive proxy contest, especially in light of our previous dialogue,” the board noted in a statement. “Target has a long history of being responsive to shareholders and has engaged in numerous discussions with Pershing Square over a 20-month period.”

The board also revealed its determination “to nominate for re-election at the 2009 Annual Meeting all four of the current directors whose terms expire at this year’s meeting.” Those directors are Mary Dillon, executive VP and global chief marketing officer for McDonald's Corp.; Richard Kovacevich, chairman of Wells Fargo & Co.; George Tamke, partner with Clayton, Dubilier & Rice, Inc.; and Telstra Corp. CEO Solomon Trujillo.

“The Nominating Committee of Target’s Board… recently met with and considered Bill Ackman, and one other individual suggested by Pershing Square, for election to the Target Board,” the company announced. “After careful consideration, the Nominating Committee determined not to recommend… Mr. Ackman, or the other individual suggested by Pershing Square.

“Following Mr. Ackman’s meeting with members of Target’s Nominating Committee, but before Target’s Board met to consider the nominations, Pershing Square informally suggested two additional candidates, Richard Vague and Michael Ashner, who are now among the five representatives mentioned by Mr. Ackman in today’s announcement,” Target’s board added in rejecting the proposal. “The other two individuals named by Mr. Ackman today were not previously discussed with Target.”