Having failed to reshape Target Corp. from the outside, activist investor and hedge fund manager William Ackman intends to take a shot from within and nominate five new directors, himself included, to the retailer’s board.
Ackman, who heads Pershing Square Capital Management and has taken severe losses on his Target investment so far, said the board needs expertise in the retail, credit card and real estate areas. Last month, Ackman apologized for the performance of his Pershing Square fund that focuses on Target and gave investors an opportunity to pull their money out or add more capital. Showing his faith in the venture, Ackman added $25 million of his own money to the fund. Target’s stock has lost 57.1 percent of its value since Ackman’s initial investment was made public in July 2007. Shares of the firm slipped 3.8 percent Monday to $28.83.
The proposed slate of directors, which Ackman disclosed on Bloomberg Television, includes credit card expert Richard Vague, former Starbucks Corp. chief executive officer Jim Donald, Winthrop Realty Trust Inc. ceo Michael Ashner and law professor Ronald Gilson.
“If you look at Target’s board, the board is comprised of top-quality business people, but none of them have experience in retail, credit cards or real estate,” Ackman said in an interview with WWD. “This is about making sure the company has the right directors with relevant experience.”
In response to the proxy contest, Target said it would nominate for reelection all four of the directors whose terms are expiring this year, including: Mary Dillon, a McDonald’s Corp. marketing executive; Richard Kovacevich, chairman of Wells Fargo & Co.; George Tamke, partner at equity firm Clayton, Dubilier & Rice Inc., and Solomon Trujillo, ceo of telecommunications firm Telstra Corp.
“We are disappointed that Pershing Square has decided to pursue a costly and disruptive proxy contest, especially in light of our previous dialogue,” Target said. The retailer said its board’s 12 members, 11 of whom are independent, have both relevant and diverse experience. The company will hold its annual meeting on May 28.
In the fall, Ackman proposed spinning off the land under Target’s stores into what would be the largest real estate investment trust in the country. Target rebuffed the investor, who controls 7.8 percent of its stock through Pershing Square.
Ackman said he was not abandoning the real estate plan and hoped the board on which he would like to sit would reconsider the plan.
“I just want to be part of the discussion,” he said. “I want people who have real estate experience to be part of the discussion.”
Ackman said Target’s stock was cheap — the issue closed down 3.8 percent Monday at $28.83, 51.6 percent below the 52-week high of $59.55 reached on Sept. 19 — and that the down economy represented an opportunity.
“I don’t think we’re going to be in a recession forever and, coming out of a recession, retail stocks are among the best performing historically,” he said.
The activist investor cast the proxy contest as a bid for more corporate democracy.
“In America, when there’s an election there’s usually at least two candidates, except for corporate boards,” Ackman told Bloomberg. “It’s kind of what I call the only Stalin-esque election process in America.”
If elected, the directors would help the discounter reach its potential, said Ackman, noting the retailer would benefit from a greater emphasis on food in its 1,699 stores.
“Traffic is critically important, particularly in a difficult environment,” Ackman said. “People are still buying food, and when they go in to buy food, they might walk by some apparel and that actually helps frequency and helps drive sales. I think Wal-Mart has been a beneficiary of having a much larger food component than Target.…We thought Target would be where Wal-Mart has been during these difficult economic times.”
Wal-Mart’s food business in the U.S. is roughly four times that of Target’s. In the fiscal year ended Jan. 31, 2008, consumables and commodities accounted for 37 percent of Target’s sales, or about $24 billion, up from 34 percent in the prior year. The grocery category generated 41 percent of sales within Wal-Mart’s U.S. stores, or about $98.2 billion, up from 39 percent in fiscal 2007. Apparel and accessories generated 20 percent of Target’s sales, down from 22 percent in 2007, versus 12 percent at Wal-Mart’s U.S. stores, down from 13 percent.
Ackman also told Bloomberg he expects General Growth Properties Inc. to file for bankruptcy “imminently.” The investor said his hedge fund has taken stakes that could give it ownership over 25 percent of the mall operator. He is pushing a bankruptcy plan in which the equity in the company remains intact.
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