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Ackman Aiming for Change on Target's Board

Hedge fund manager Bill Ackman said Pershing Square Capital Management's proxy fight with Target isn't about poor management at the discount retailer.

Shoppers check out at a newly-opened Target store near Royersford, Pa., on Monday, Nov. 13, 2006. Discount retailer Target Corp. said Tuesday its third-quarter profit rose 16 percent, beating analyst expectations as its sales rose 11 percent. (AP Photo/George Widman)
George Widman
Shoppers check out at a newly-opened Target store near Royersford, Pa., on Monday, Nov. 13, 2006. Discount retailer Target Corp. said Tuesday its third-quarter profit rose 16 percent, beating analyst expectations as its sales rose 11 percent. (AP Photo/George Widman)

Instead, Ackman wants to put in place a board with more retail experience to bring new ideas and experience to the company, and to establish an "ownership culture."

"First of all we are very supportive of management," Ackman said. (To listen to the full interview, click here...) "...We think the directors are high-quality people, but if you look at Target's board, this is obviously a major retailer, a major credit card company, a major owner of real estate, and yet there's not one retail executive on the board, there's not one credit card executive on the board."

Ackman, who is is Pershing Square's managing director and portfolio manager, is nominating himself and four others for the Target board.

The slate of directors, which will be presented at a meeting Monday, includes former Starbucks CEO Jim Donald. Donald also has grocery store experience, which will be an important area for Target in the future.

Donald appeared on CNBC Monday, but declined to share some of his ideas for Target during the interview. However, Ackman said Donald has made visits to a number of Target stores recently and has ideas about how to improve the store's performance.

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Despite a rebound in Target shares recently, the stock remains down more than 39 percent from its peak of about $70 in July 2007.

Target is Pershing Square's largest single holding, and its PSIV Fund is dedicated to solely investing in Target. All together, the fund owns a 7.8 percent stake in the retailer's stock and options.

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Ackman said his fund is a long-term investor in Target, and cited his firm's plans to exercise its right to extend the maturity dates on its options as a sign of its commitment.

Target's performance has lagged Wal-Mart, it's main competitor. For example, the latest same-store sales results from April showed Wal-Mart sales in stores open at least 12 months rose 5.9 percent, while Target's same-store sales grew 0.3 percent.

In the past, Wal-Mart has tended to outperform Target in tough economic times, but the margin between the companies has grown in this current downturn. Also, some say Target's poor performance began even before the economy slowed as other retailers began to copy Target's strategy of providing inexpensive products with a designer-like appearance.

Despite the positive things Ackman said about Target's management Monday, he has been critical of management for remaining in the credit card business at a time when credit is deteriorating and unemployment is rising. He also thinks that Target's branding of "expect more, pay less" doesn't resonate as well with consumers when economic times are tough.

"There's a reason why Wal-Mart and Kohl's, and others, Sears , have exited the credit card business because there really is an inherent conflict between the retailer and the credit card business. The retailer wants to generate same-store sales. The CEO wants to create as much credit for his customers, but obviously the problem with that is that you extend credit too much."

Ackman could spend as much as $10 million to $15 million on his proxy battle with Target, but he said he thinks it's worth it.

"I think if you can get the right directors on the board, I think it is going to help the company in a big way," Ackman said.

Ackman has been successful in other boardroom battles. In 2006, he helped convince Wendy's International to sell off its Tim Horton's doughnut and coffee chain. In 2007, he struck a compromise with Ceridian that gave Pershing four seats on its board. The payroll company was later sold to private equity firm Thomas H. Lee Partners and insurer Fidelity National Financial.

Target, in turn, has criticized Ackman for launching the proxy contest solely to boost Target shares for Pershing's short-term gain.

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