Target Defeats Ackman; Shareholders Side with the Company

Activist shareholder Bill Ackman of Pershing Square Capital, who holds nearly 8% of the shares in Target (TGT), failed to ignite the sort of fire under shareholders to get 4 members of Target’s board replaced. Actually, Ackman had hoped that shareholders would back him up in expanding the board to 13 members: five would be new to the board Ackman being one and then his hand picked team would make up the rest. Interestingly, RiskMetrics weighed in on the proxy fight, but they could only recommend the shareholders vote for 2 of the 5 board members proposed by Ackman. However, as the votes were tallied it appeared that Ackman had failed to secure even one spot on the board, and apparently it was not even that close.

Ackman is a famous hedge fund manager and founder of Pershing Square Capital. He has lost hundreds of millions on his dealings with Target over the years, and he is still well in the hole even as Target stock has rebounded more than 50% since the hitting its lows in March. The rift between Ackman and Target’s management relates to two specific ideas that Ackman has proposed to the board and neither has materialized. First, he wanted Target to spin-off their real estate holdings into a separate REIT, and he has also recommended that Target greatly reduce their exposure to consumer credit cards. Target has taken some steps to sell off exposure to credit cards, but not a huge policy shift. Apparently Ackman has overestimated the influence that he and his investment has on the management of Target.

The shareholders sent a message today, that they are going to stick by the discount retailers management. The company has been losing market share to Walmart (WMT) in the last few quarters as consumers focus on basics instead of some of Target’s specialties of clothing and home goods. At Ockham, we are reaffirming our Fairly Valued rating on Target shares at this levels. This one certainly stings for Ackman, he must feel pretty helpless in this case, but this precisely the reason that shareholder can vote on such matters. Management has won this battle, but I wouldn’t count on Ackman backing down anytime soon.

“One of the country’s most press shy retailers won its proxy battle against Bill Ackman… Its shareholders elected all four of the discounter’s nominees. Regardless of the outcome, shareholders are likely to benefit from the feud, say analysts… The stock has fallen 44% since 2007 when the year Ackman opened his Target-only hedge fund. The value of that fund has fallen 80%, despite the even recent 13% gain in Target shares this year. Though, Bill Ackman’s fate is linked to Target’s rebound. Pershing Square funds owns 3% of Target’s stock and 4.5% of its options. Yet, Bill Ackman has gained considerable media attention for his recent campaign.

Now, the shareholders have rejected his proposals and nominated these four people to Target’s board, what does it mean to the company? Analysts say the heat isn’t off Target as shareholders may not continue to support Target which has been given up market share to discounter Walmart as cash-strapped consumers turned to basics and turned away from clothing and home products which make up the bulk of Target’s success may have to do more with the economy than its own actions.” CNBC’s Closing Bell 5/28/2009

Ackman Missed His Target

About Ockham Research 645 Articles

Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

We utilize this straightforward approach to value over 5500 securities, with key emphasis given to the study of individual securities' price-to-sales, price-to-cash earnings and other historical valuation ranges. Our long term value investing methodology is powered by the teachings of Ben Graham and it has proven to be very adept at identifying stock prices that are out of line with fundamental factors.

Ockham Research provides its research in a variety of forms and products including our company specific reports, portfolio analytics tools, newsletters, and blog posts. We also offer a white labeling research solution that can give any financial services firm their own research presence without the time and cost associated with building such a robust coverage universe of their own.

Be the first to comment

Leave a Reply

Your email address will not be published.


*