Sides split in proxy fight over Target board

The latest round in Target Corporation's fight against activist investor William Ackman for seats on its board of directors has resulted in a split decision. One shareholder voting advisory firm on Friday recommended investors vote with Target, while another recommended they vote with Ackman.

But neither advisory firm offered full support.

In this convoluted proxy fight, ballots are constructed so that investors are unable to mix votes. They must either select among Target's card of four candidates or Ackman's slate of five. (The sides don't even agree on how many board seats there are -- a matter that also is up for a vote.)

Proxy Governance Inc. came out in favor of Ackman but only for two of his five candidates: Those with experience in real estate and food retailing, two key business segments for the country's second-largest discounter.

Meanwhile Egan-Jones, another proxy adviser, sided with Target in the contest but only for two of its four directors. It found fault with two of the nominees -- Wells Fargo Co. Chairman Richard Kovacevich and George Tamke, of private equity firm Clayton, Dubilier & Rice Inc. -- saying their firms' business affiliations compromise the independence needed for "sound governance practice."

Minneapolis-based Target defended Kovacevich and Tamke, saying they "fully meet" the standards of the Securities and Exchange Commission and the New York Stock Exchange. Target said it was "disappointed" that Egan-Jones suggested withholding votes "on the basis of minimal, ordinary course [of] business transactions between Target and their companies."

The opinions of proxy advisory firms carry sway among institutional investors who are inundated with fight letters and back-and-forth communiqués as each side vies for shareholder votes. Investors pay the independent firms to help them sort through the issues.

But experts say the more eagerly awaited voter advisory report will come Tuesday, when the influential RiskMetrics is expected to release its recommendations. RiskMetrics advises more than 20 percent of shareholders, while Proxy Governance and Egan-Jones advise a combined 10 percent, according to Dow Jones.

"When it's a big fight, like Target, oftentimes the institutional shareholders will take the recommendation under advisement, but will make their own decision," said Damien Park, president of Hedge Fund Solutions, a consulting company that is not involved in the Target proxy contest.

Proxy Governance supports Ackman's quest for a larger board size of 13, and said Target could benefit from Ackman's real estate expert, Michael Ashner, as well as candidate Jim Donald, who launched Wal-Mart's grocery business. It said Target's sizable real estate holdings will continue to make it a strategic issue, even though the retailer has "presented compelling reasons to question" Ackman's persistent proposals to sell the land under its stores.

Still, the firm offered qualified support of Target, noting, "This is not a board which lacks either vision or nerve."

Egan-Jones, notwithstanding its concerns over the two candidates, otherwise supported Target's slate, including a 12-member board. Despite relevant experience of Ackman's nominees, Egan-Jones said, "we are not convinced that their election would lead to significant improvements in shareholder value, nor work to the benefit of shareholders."

Park said companies in proxy contests are often negotiating a settlement right up to the shareholders meeting. He said both companies are likely busily tabulating votes based on Friday's recommendations. "It can take the settlement discussions to a new level."