Shareholder values in question

Proxy battles are never waged at companies when their sales, profits and the stock price are rising. That’s why you have to appreciate William Ackman’s perspective in seeking change at Target, and why he has as proposed an alternate slate of directors. Sales, profits and the stock price have declined at Target since Ackman acquired his 7.8% ownership interest in the company, so he has a right to be disappointed and suggest that change is in order. Normally that would be the case, but Ackman is no ordinary investor, and he appears to have bought into Target with a specific goal in mind to persuade the company to sell or spin off pieces of the business, such as the land underneath stores or credit operations, that might generate an immediate shareholder return, but would otherwise do nothing to impact the customer-facing aspects of the business. The financial maneuvers Ackman wants Target to make might create a short-term boost to the stock price, which in turn could enable him to unwind his sizable position before moving on to target another company.

At this stage of the game, there isn’t anything wrong with Target that isn’t wrong with almost every other company in the retail industry. Most consumers are afraid of their own shadow and reluctant to spend money on anything other than food and consumables. Even then, people are looking to save money with coupon redemption rates on the rise, and the shift to store brands accelerating. Target’s senior executive and all those involved in merchandising, marketing and operations are locked in battle for sales every day. The last thing the company needs, and ironically the worst thing for an investor interested in increasing shareholder value, is to distract senior management with a proxy battle.

Yet, that is exactly what Ackman is doing, with the most recent example involving a squabble over whether Target’s board consists of 12 or 13 members. When former chairman and CEO Bob Ulrich was on the board there were 13 members. However, when he retired the size of the board shrank to 12 members, with what Ackman contends is one empty seat. The difference is important to him because he has proposed a slate of five alternate board members, but Target contends only four seats are empty because the board has 12 members. So instead of spending their time focused growing sales, fending off Walmart or contemplating a move into Canada, Targets president and CEO Gregg Steinhafel and CFO Doug Scovanner are pulled away on matters regarding the size of the board, which is simply a byproduct of a larger debate with Ackman over his other ideas relating to the sale of land underneath stores and credit operations. As a result, Target has amended its proxy statement and is asking shareholders to formally establish the size of the board at 12 members. With Target’s annual meeting and a vote on the board members nearly two months away on May 28, there is plenty of time for more back and forth between Ackman and Target.