Target proxy battle heats up as annual meeting approaches

NEW YORK It isn’t often that one of America’s premier retail companies finds itself the subject of a determined battle for management control by a disgruntled shareholder. That’s especially true for a retail giant with an enviable track record, a highly regarded management team and a resoundingly successful niche strategy.

Nevertheless, that’s the scenario facing Target’s top managers when they convene the company’s annual meeting of shareholders May 28. The event, to be staged at a Target store in Waukesha, Wis., promises a showdown between the current directors of the 1,698-store upscale discount chain and William “Bill” Ackman, a venture capitalist who is founder and CEO of investment and hedge fund firm Pershing Square.

For president and CEO Gregg Steinhafel and other senior brass, a proxy fight with an activist and very vocal major shareholder has to be an uncomfortable and unfamiliar scenario. Target’s managers like to fly under the radar, and their annual meetings are usually characterized as brief, sparsely attended, low-key events with little or no controversy.

This year’s meeting may hold enough drama to raise both the attendance level and the time limit. It’s unclear at this point how Ackman will proceed or state his case at the meeting, although it’s certain both sides are working to line up support from outside Target investors.

Ackman’s bid to stack the board with as many as five directors isn’t just a meaningless gesture from some small-stake gadfly investor with a few hundred shares of stock. Pershing Square is reported to hold some 10% of Target’s total common shares — a powerful club to wield in any fight for board representation.

That doesn’t mean Ackman will prevail; he most likely won’t. Outside agitators trying to shake up the boards of generally well-regarded companies to wring more value out of both the corporate assets and their own stockholdings don’t usually win such battles with entrenched management and boards, Carl Icahn notwithstanding. But Ackman’s influence and his appeal to uncommitted shareholders could conceivably win a concession or two from the existing board, or at least another hearing.

And what if Ackman does capture seats on the board, either late this month or in the future? It may mean little to the average Target customer. Ironically, it isn’t Target’s retail strategy, its niche marketing capabilities vis-a-vis Wal-Mart, or its merchandising prowess that the Pershing Square founder apparently disagrees with; indeed, Ackman in the past has strongly endorsed the company’s leadership and retail vision. What the investor says he really wants is a way to get Target to unlock what he describes as the unrealized value inherent in the company’s assets, notably in the real estate it owns underneath its stores, and the credit card business it generates.

Late this month, Target’s unaffiliated shareholders will get a chance to tell Steinhafel what they think of that idea.