Billionaire hedge fund investor Bill Ackman is stepping up his proxy battle with discount retailer Target Corp. (TGT). Ackman, whose Pershing Square funds control 7.8% of Target shares, has reportedly called a meeting in Manhattan on Monday to introduce his slate of five dissident directors including himself ahead of the company's 2009 Annual General Meeting of Shareholders scheduled for May 28.
Ackman has been pressuring Target for the last two years to change its business strategy. On March 17, Pershing Square announced the nomination of five independent directors for the open seats on Target's board.
In a filing with the Securities and Exchange Commission, or SEC, on May 7, Pershing Square said that Target's current board lacks sufficient relevant experience and significant shareholder representation, owning less than 0.3% of the company. Target's independent directors own less than 0.1% of the company. The fund also highlighted the fact that the average tenure of the company's incumbent nominees is approximately 10 years.
"We believe that the deficit of relevant experience and the lack of significant shareholder representation on Target's board has contributed to the company's material underperformance during this recession", the fund said in the filing.
Pershing Square also provided a detailed comparison of Target with its competitor Wal-Mart Stores Inc. (WMT) and said that the company's negative returns to its shareholders are reflective of its operating underperformance compared with Wal-Mart. Since the fourth quarter of fiscal 2007, Target's earnings per share growth has been significantly less than that of Wal-Mart. Target's credit card segment operating profit was down 65% in 2008, due to bad underwriting decisions amplified by increased credit risk, the fund said.
"We note that Wal-Mart partnered with a financial institution for its store credit card years ago. It does not own credit card receivables and has none of the material risks associated with these assets," the fund said.
Pershing Square also said that its nominees have relevant experience to accomplish various objectives. The Pershing Square is supportive of Target's management and the goal of this election is to improve Target's board, the fund stated.
Pershing Square's nominees for shareholder choice are Jim Donald, Richard Vague, Michael Ashner, Bill Ackman and Ron Gilson. The fund said that Donald, Vague, Ashner and Gilson are independent nominees with no commercial relationships with Target or Pershing Square.
Ashner has served as Chief Executive officer of Winthrop Realty Trust, Inc. (FUR) and Donald is the former Chief Executive of Starbucks Corp. (SBUX). Gilson is a law professor and Vague is the former Chairman and Chief Executive of First USA.
"Ultimately, with a better board, we believe that Target will become a more valuable and profitable company," Pershing Square added.
TGT closed Friday's trading at $43.79, up $1.12, on a volume of 11.98 million shares.
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