3rd UPDATE:RiskMetrics Backs Ackman, Donald For Target Board
May 19 2009 - 6:43PM
Dow Jones News
RiskMetrics said Tuesday it is backing hedge-fund investor
William Ackman and former Starbucks Corp. (SBUX) Chief Executive
James Donald to join Target Corp.'s (TGT) board, bringing Ackman
one step closer to at least a partial victory in his proxy battle
with the retailer.
Ackman, founder of Pershing Square Capital Management, is
bidding for five seats on Target's board, and has received tepid
support from other proxy advisory firms. However, RiskMetrics'
decision carries much more influence, as it advises a much larger
percentage of shareholders than its competitors.
RiskMetrics recommended only Ackman and Donald for Target's
board, rejecting Pershing Square's other three nominees and not
selecting any of Target's, because of a technicality involving
proxy cards amid attendance at the shareholder meeting.
The advisory firm said Ackman's other three nominees, who have
expertise in corporate governance, credit cards and real estate,
respectively, shouldn't be elected because Ackman himself has some
knowledge in all three of those areas.
Target hasn't approved what's called a "universal proxy card,"
so RiskMetrics said it couldn't support any specific Target
incumbents. If it were able to, the firm said it would recommend
re-electing incumbent Mary N. Dillon, a McDonald's Corp. (MCD)
marketing executive, and voting against incumbents George W. Tamke,
partner at private-equity firm Clayton, Dubilier, and Solomon D.
Trujillo, chief executive of Australian telecom company Telstra
Corp. (TLSYY).
Because the two slates are on separate proxy cards, shareholders
must attend Target's May 28 shareholder meeting in order to pick
and choose among the company's and Ackman's nominees. If they don't
attend, they can only select from Target's white proxy card, or
Ackman's gold card.
Three other proxy-voting advisory firms have already weighed in,
with Proxy Governance supporting two of Ackman's nominees, Donald
and real-estate industry veteran Michael Ashner. Egan-Jones backs
none of Ackman's nominees but says holders should withhold votes
for two of Target's incumbents, while Glass Lewis & Co. said
Tuesday it is backing all four of Target's nominees.
In a statement, Target Chairman, President and Chief Executive
Gregg Steinhafel praised Glass Lewis, but said of RiskMetrics, "We
believe that [it] reached the wrong conclusion and one which is
inconsistent with its own policies."
Target said RiskMetrics went against the firm's own "two-pronged
framework" for analyzing proxy contests, which places the burden of
proof on a dissident to prove board change is warranted, and that
the dissident nominees are likely to make positive changes at a
company.
Meanwhile, RiskMetrics is backing Ackman's contention that the
Target board should have 13 members, joining Proxy Governance.
Glass Lewis backed Target's proposal to fix the level at 12, along
with Egan-Jones.
Corporate-governance experts have said the RiskMetrics report is
the one everyone was watching for. RiskMetrics typically advises
more than 20% of shareholders, while Proxy Governance and
Egan-Jones combined advise less than 10%. Charles Elson, director
of the Weinberg Center for Corporate Governance at the University
of Delaware, last week called those endorsements "tepid at best,"
saying, "The real question will be answered by RiskMetrics."
Ackman's Pershing Square owns more than 7% of Target through
stocks and options, and has lost hundreds of millions of dollars
for himself and investors in the process. He has lobbied for many
changes at Target, including a transaction to capitalize on its
real estate, and a reduction to its credit-card exposure.
"Together with the recommendation of Proxy Governance last week,
this confirms the clear need for meaningful change on Target's
board," Ackman said in a statement.
Ackman launched the proxy battle in March after Target rejected
his proposal to create a real-estate investment trust out of the
land Target owns under its stores.
RiskMetrics said, "We acknowledge that one of the motivations of
Pershing to engage in the proxy fight could be to 'save face' for
the money Pershing lost investing in Target, but question whether
that motivation should preclude the support of Pershing's fellow
shareholders. It would be curious to justify full support for a
board that oversaw the short-term value destruction that allegedly
led to the proxy fight."
The discount retailer's results have slid during the recession
as shoppers shun discretionary purchases for low-priced basics.
Glass Lewis, while noting Target "appears to be struggling in
this recent downturn" with sales down for more than a year, said,
"We are not convinced that the company is in need of a shakeup" at
the board level. Glass Lewis also doubted Ackman's contention that
his slate's retailing experience is superior to the current
directors' and added that his presence on the board at struggling
Borders Group Inc. (BGP) "has done little to create shareholder
value."
Target's shares closed Tuesday up 17 cents, at $41.94.
-By Joseph Checkler; 201-938-4297;
joseph.checkler@dowjones.com
(Kevin Kingsbury and Kerry E. Grace contributed to this
story.)