Advocates for activist investors and incumbent management have spun the outcome in many ways. Notwithstanding the merits of the differing arguments about investor's rights and corporate governance, we see here a simple story. Target is on the mend and current management has been given a mandate to proceed.
Supporting our version of the significance of the proxy fight outcome are the data from the Steel City Re IA (Corporate Reputation) Index. The Index, which correlates with reputation surveys such as those published by Forbes, Fortune, and Harris Interactive, captures the financial implications of stakeholder behaviors and expectations of stakeholder behaviors as determined by corporate reputation. The Index is a good leading indicator of financial performance and returns on equity.
The Steel City Re Index shows that after sliding from the #1 slot to below the 50th percentile late in 2008, Target has rebounded steadily over the past six months and is now ranked in the 75th percentile among its 15 peers in the Multiline retail sector. Over the last year, Target has outperformed the median of this group by 3.26%. Further, the exponentially weighted moving average index volatility has been steadily decreasing recently.
Ackman has specific ideas he would like management to implement. Management has accepted some and rejected others. Over the past six months, stakeholders have been rewarding CEO Gregg W. Steinhafel and Target’s management for its balancing act with Ackman. Last week, shareholders voted to stick with management to the detriment of Ackman, whose fund, Pershing Square IV, has lost much of the $2 billion it bet on Target in 2007. We suspect the tussle is not over yet.
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