Ackman is an activist shareholder who used his ownership interest in Target to pressure Target's senior management. First, Ackman proposed a real estate sale-leaseback primarily because he felt that "the stock market was not giving Target any credit for its large and valuable real estate portfolio." “Target owned 85 to 95 percent of its stores and facilities. Therefore, selling these assets and then leasing the space would create great value, presenting a buyout opportunity. However, this proposal was ultimately rejected by Target, as was Ackman's proposal requesting two board seats. Over time, as Ackman's proposals were rejected one after the other, he developed opposition to Target's corporate governance and particularly to its directors. He then launched a proxy fight against Target and increased his pressure on management by naming a slate of five directors to run against the re-election of Target's directors. He was concerned that Target's board did not include any directors with CEO experience in the credit card or real estate industries - two of Target's main business-creating segments - believing that this lack of board experience had contributed negatively to Target's recent performance. He also highlighted the lack of shareholder representation on the current board - he argued that Pershing Square (owning 7.8%) compared to the existing board (holding less than 0.1%) of the company) had a greater economic motivation to create long-term shareholders. value.Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an original essay Additionally, as an individual shareholder, Ackman owned more stock than any executive in the company and undoubtedly wanted to see Target succeed in both the short and long term. in the long term. Target communicated with other shareholders encouraging them to reject Ackman's slate of candidates and publicly questioned his motives - they did not believe Ackman's interests were aligned with those of other shareholders because a substantial percentage of Perishing Square's stake in Target was in the form of derivative securities that were set to expire in about a year, which would likely lead them to emphasize the short-term performance of Target's stock and ignore long-term success and risk management. In the end, Target won, and shareholders gave more than 70 percent of their votes to a slate of Target nominees. However, neither Ackman nor Target came out of this proxy fight unscathed as it was costly for both (around $10 million) and Target fell on hard times. Unfortunately, a lot of uncertainty and board discussion surrounded this proxy fight rather than business strategy. Given the situations described in the case study, we cannot say that Ackman completely controlled Target Corporation. As we know, stock ownership does not imply control of a company - even holding the high percentage of shares he did, Ackman could not simply give orders to directors and still had to deal to a lot of bureaucracy for his proposals to be accepted by the company as he still had to confront the other shareholders and the board of directors. At most we can say that Targetmight have to deal with Ackman in certain situations where he might ultimately have control, even by proxy, of the other shareholders. Ackman was not a “normal” shareholder of Target Corporation: as a common stock owner and hedge fund manager, he was in a position where conflicts of interest could arise. Hedge fund activism, whereby hedge funds (even when they are minority shareholders) can exert considerable influence over corporate decisions, has grown in recent years, particularly in the United States. This has been seen as a positive impact for corporate governance as it helps alleviate the agency problem. However, this is seen by many as a form of extortion, where hedge funds pressure companies to change certain aspects just so they can get returns on their investments. The fact that Ackman was also a hedge fund manager may be the real motivation for Ackman's activism toward Target Corporation. It is clear that his responsibilities to the hedge fund's clients could have influenced certain decisions that he attempted to impose on the company - for example, making decisions that would compromise long-term performance simply to present short-term benefits. term since its clients had options on the Target fund. a share that would no longer be worth anything in the very short term if the company did not manage to increase its share price to $35/share. This short-termism was what many expected from hedge fund activism, and even if it wasn't Ackman's real motivation, it ended up being as damaging as if it were. This places his 2 actions in a new perspective: it is possible that his interests as an active shareholder came more from a professional side (ie satisfying his customers to obtain bonuses or even simply reputation) than from the will to represent the interests of all shareholders. - which was actually one of the arguments Target made for shareholders not to side with Ackman in this feud. The study helps assess the merits of activist investor challenges to the company's strategy and the board's response to it. The general practice of directors being nominated by existing directors created a feeling among shareholders that their interests were not well represented and that, in reality, Target's board lacked meaningful shareholder representation . From this case, we can learn several lessons about the controversy that can arise when shareholders wish to propose new candidates to the board of directors. The simplest point we can make is that the constant fights between shareholders and the company over these issues This type of decision can result in huge losses for both parties, regardless of the outcome of the fights (in the proxy fight, both sides spent considerable sums – approximately $10 million). In addition to the instability created by the division of shareholders between two camps - either for Ackman or for Target - this struggle also caused management to lose focus on the company's strategy, something it could not afford given the company's poor performance during the recession. The power struggle was unusual because Target had been praised for its "superior board governance" and superior long-term stock price appreciation. However, some consulting firms, Ackman acknowledged, could have..