Hedge fund Pershing Square, which beneficially owns 3.3% of Target Corporation’s outstanding common stock, has nominated five candidates (William Ackman, Michael Ashner, James Donald, Ronald Gilson and Richard Vague) for election to the Target board at the annual meeting to be held on May 28th. Target’s board is classified, so only seats in Class III are open this year.
Pershing Square’s case for its nominees does not rest on having a specific plan to be implemented at Target, although Pershing Square had been advocating for a transaction allowing Target to realize value from its large real estate holdings. Instead, Pershing Square emphasizes the value brought to the board by its nominees, who have experience in grocery, credit cards, real estate and corporate governance, in light of the specific challenges facing Target.
Pershing Square’s approach appears to have hurt Pershing Square’s nominees with proxy advisor Glass Lewis, which recommended that its clients support the board’s slate due, in part, to the Pershing Square slate’s lack of an operating strategy. (Rival proxy advisor RiskMetrics, on the other hand, issued a recommendation supporting two of Pershing Square’s candidates.) Pershing Square also faults the Target board for low levels of stock ownership and for recent stock price performance lagging behind that of competitor Wal- Mart. Performance measurements cited by Target, however, show it outperforming both Wal-Mart and the S&P 500 over several time horizons.
In addition to the nuts and bolts of running the nation’s second-largest retailer, more abstract notions of shareholder democracy are also at play in this contest. Pershing Square refers to its slate as the “Nominees for Shareholder Choice.” In its proxy materials, Pershing Square states (in the voice of William Ackman, one of the nominees and the founder of Pershing Square), “I have always found it astonishing that in the most democratic nation in the world, elections for the boards of U.S. public companies are generally uncontested. . . . In the political realm, we see analogous elections only in the Third World and in dictatorships. We are not going to solve this problem today, but at Pershing Square’s expense we have created the opportunity for shareholders to choose between the company’s incumbent directors and a new independent slate that we have identified.”
Pershing Square’s request for a “universal ballot” echoes these themes. A universal ballot is a proxy card containing the names of all candidates for the board—those nominated by the incumbent board and those nominated by shareholders. Shareholders can execute one card to vote for whatever combination of candidates they wish, whether all company-backed, all dissident-backed or a combination of the two. (Without a universal ballot, shareholders wishing to vote for some board and some dissident nominees must execute two cards.) Pershing Square requested the universal ballot on the day Target released its definitive proxy statement, which may (depending on which side you believe) have been too late in the game to allow the ballot to be produced and distributed to shareholders, including those voting electronically via Broadridge’s electronic voting platform. In any event, shareholders will be voting in the traditional way, on separate proxy cards, at the upcoming meeting.
In connection with the contest, Target and Pershing Square are also wrangling over the correct size of Target’s board. Target asserted that the board had 12 members, following the resignation of the company’s former chairman and CEO, but Pershing Square claimed that the company’s charter required shareholder approval for any reduction in the size of the board below 13. Although Target disagrees with Pershing Square’s analysis, it has submitted a proposal for shareholder approval setting the board’s size at 12. If this proposal is approved, four board seats will be up for election at the annual meeting. If it is not approved, five seats will be open. (Pershing Square has nominated five candidates in the event five seats can be contested.)
Beth Young — Senior Research Associate, Shareholder Issues, M&A and Takeover Defenses
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