Target Corporation: Ackman Versus The Board: FM2 Case Study Analysis
Target Corporation: Ackman Versus The Board: FM2 Case Study Analysis
Target Corporation: Ackman Versus The Board: FM2 Case Study Analysis
fight to enable a discussion of the role of the board, board composition, and the proposed
SEC proxy voting rules in the context of Target's proxy fight.
In May 2008, Target closed a deal for $3.6 billion with JP Morgan Chase for its
Credit Cards Business.
In Nov 2008, Target announced that it was not in favour of pursuing the REIT idea
after detailed deliberations with all stakeholders.
In 2009, Pershing pushed for a total changeover of the Target Board and nominated 5
candidates including Ackman primarily citing the present mangements incompetency
in dealing with the worsening situation. Their main plank was the dipping
performance of Target in comparison with Wal-Mart as depicted in the graph below.
Pershing created further confusion by raking up a debate on board size and use of
universal proxy.
Target expressed the opinion that Pershings push for REIT would be similar to
leveraged recapitalization, adding a liability of $1.4 billion to Targets already
uncertain value creation in the midst of the recession. This would threaten financial
flexibility, credit ratings and access to capital.
There was a virtual stand-off between the investor and the management of Target,
both adopting vociferous campaigning to woo the other public share holders.
The share-holders voted for status-quo and retained the present board and the 5
candidates propped up by Pershing were defeated comprehensively.
The challenge that confronts Gregg Steinhafel, CEO Target, is that he has to frame a long
term strategy which works well also in the short run delivering value to all stakeholders
primarily the customers and shareholders. This involved a bit of a tight ropewalk as he has to
contend with activist investors with the capability to topple the entire board and the
customers who can change loyalty at any moment.
Conclusion
Our recommendation on the case is that Target should stick to their basics and not try to do
anything radical just to beat the recession. Since the company is based on good values and
has a sound financial background, all it needs is the backing of the economy. The stores like
Wal-Mart having superior bottom-line during recession is understandable on account of WalMarts thrust of even consumables including groceries which were not on the list of priorities
of Target. So Target can just increase their share of offer in the Food segment and leave the
rest to the economy and the end of recession would usher in a new surge in sales of Targets
assortment of offers. As of survival during the tough years, it would be prudent to gauge the
quality of Target on the financial Ratios rather than the sales over a short period or the share
prices tumbling as the share price movement of Target shares were anyway artificial due to
the activities of Financial Institutions like Pershing. All the financial ratios given in Exhibit
11 suggest good financial health of the company when compared to Wal-Mart. The current
ratio of the company has increased amazingly in the recession and the only worry seems to be
some increasing debt. But that too is not at an alarming rate. Hence as mentioned, Target
needs to adopt a cautious yet confident approach and go ahead with the same policies.