Ackman Opens His Target Slate to Questions

Bill Ackman, who runs the Pershing Square hedge fund, is planning to hold a meeting on May 11th at the Equitable Building in Manhattan to let investors grill his slate of directors for his big Target proxy contest.

But don't call it his slate.

"There may be a misimpression which we are going to work to clear up among analysts and shareholders that this is a Pershing Square slate, a group of cronies of Bill Ackman," he told me. "They are independent. We don't have any agreements or understandings with any of the directors."

Convincing shareholders will be tough. The group he assembled is qualified, but Target's independent directors aren't hacks. Ackman is running for a board seat, arguing that Target's independent directors don't have sufficient expertise in what he sees as the chain's three main businesses: retail, credit cards, and real estate.

Running with Ackman are Jim Donald, the former CEO of Starbucks; Richard Vague, the founder of credit card company First USA; Michael L. Ashner, the chairman and CEO of a REIT called Winthrop Realty; and Ron Gilson, a professor at Stanford and Columbia and corporate governance guru.

Ackman scored a tactical victory Tuesday. In a note, RiskMetrics, the influential proxy advisor, praised Gilson's support of a so-called universal proxy card. For those not obsessed with proxy contest arcana, here's how the typical ones work.

Shareholders who attend the meeting get a ballot with both sets of candidates. Those who don't attend the meeting -- usually the vast majority of shareholders -- get one card from the company and one card from the dissident slate.

To vote for individual directors across different slates is a pain. Many corporate governance types support a universal card with both sets of candidates on one card for those who don't go to the annual meeting. It's a meaningful, though somewhat minor, issue.

"Pershing appears to be astutely exploiting the current pro-(shareholder)-choice zeitgeist, and puts Target on its back foot. It will be challenging for Target, absent some sort of unwaivable legal impediment, to argue against Pershing's proposal without coming across as anti-shareholder," Riskmetrics wrote in the note.

"It's the most pro-choice, pro-shareholder thing to do," Ackman said. "If you don't like Bill Ackman, you should be able to vote against me but pick other candidates. It's a rigged game but we are going to unrig the game."

It may not be moot anyway. A person familiar with the proxy process on the Target side said the main ballot firm, due to a technical issue, couldn't physically send out universal ballots.

For its part, RiskMetrics is likely to support at least a couple of Ackman's candidates. It will come out with its recommendations in mid-May, two weeks before the annual meeting where the vote will take place.

But the company remains confident that shareholders won't vote out the current board members. So far, Wall Street analysts, master suck-up artists that they are, have lined up with the company. Deutsche Bank's Bill Dreher went so far as to title a recent report, "We side with management."

Ackman bristles at a perennial knock on him: that he owns too many options and therefore doesn't have the long-term interest of the company in mind. Pershing owns about $1 billion worth of stock, over one-fifth of his hedge fund assets, and $280 million in call options, held in his Target special fund.

That highly leveraged single-stock fund lost about 90 percent of its value at its nadir, wiping out almost $2 billion in value, though it has recovered a bit as Target's stock has come back.

"Management and the board have greater stakes in options than we do, their options are at higher strike prices than ours are, and they didn't pay for theirs," Ackman counters.

by Jesse Eisinger

Jesse Eisinger profiles Bill Ackman in the May issue of Condé Nast Portfolio.

---