Ackman vs. Barron's on Target - The Manual of Ideas

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Ackman vs. Barron's on Target 0 comments

May 24, 2009 1:14 AM | about stocks: TGT, WMT

Activist investor Bill Ackman's proxy fight against the incumbent directors of Target (TGT) didn't receive a ringing endorsement from Barron's this weekend. Always on the ball, Ackman wasn't slow to respond.
Wrote Andrew Bary in Barron's:
ACKMAN'S INITIATIVE COULD be one of the worst-conceived efforts in recent years by an activist investor, considering the dubious benefits his proposed strategy might produce. Target is the only major retailer that has thrived while going head to head with one of the world's most formidable companies: Wal-Mart Stores (WMT).
Target stock has bested its retailing peers and the Standard & Poor's 500 index in the past decade, and the company's earnings have nearly doubled in the past five years. Its fiscal first-quarter profit of 69 cents a share, reported last week, topped expectations and was down a modest 7% from year-earlier levels. Revenue was up slightly to $14.4 billion, making it one of a handful of retail giants to post sales gains.
Ackman responded aggressively, arguing among other items that,
The current board has also failed to create a culture of stock ownership at Target. Senior management had not purchased one share of Target stock in the last five years until one day after we launched this proxy contest. Rather than purchase stock in the company, the board and management have sold more than $400 million of stock in the last five years. The board owns less than 0.27% of the company's stock and options despite their extended tenure on the board and the annual restricted stock and option grants they have received over the years.
...we never proposed that Target consider transferring its stores to a REIT. Rather, we proposed that Target would continue to own its stores while contributing the land under its stores to a REIT. This is an extremely important and material difference. The benefits of our proposed structure is that there would be no restrictions whatsoever on Target making "renovations, expansions and enhancements that are part of the ongoing evolutions of any retailer." In fact, there would be no covenants at all other than the requirement that Target make semi-annual rent payments. Target already leases the land for 10% of its stores. Our proposed transaction would simply expand this percentage to nearly all of Target's stores.
Disclosure: No positions.

Themes: corporate governance Stocks: TGT, WMT

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