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Aug 12, 2009
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Ackman alters Target stake, sticks with retailer

By
Reuters
Published
Aug 12, 2009

BOSTON/SAN FRANCISCO (Reuters) - Less than three months after losing a bruising proxy battle with Target Corp (TGT.N), hedge fund manager William Ackman is signaling his intention to stick around.



On Tuesday 11 August, the activist investor, known for waging carefully researched and relentless campaigns for corporate change, made a filing with U.S. securities regulators showing his fund converted most of its options in Target into common stock, cutting its overall holding to 4.4 percent from 7.8 percent.

At first glance, the move could be seen as Ackman, who spent millions of dollars trying to persuade shareholders to replace four of Target's directors with his independent slate, giving up his big bet on the retailer after losing the battle.

But the dollar amount that New York-based Pershing Square Capital Management has invested in Minneapolis-based Target Corp (TGT.N). is nearly unchanged at more than $1 billion.

Pershing Square increased its ownership in Target to 3.5 percent from 3.3 percent, but sold some call options that entitled the firm to buy shares, resulting in a lower overall stake, the firm said in a regulatory filing.

Instead of walking away, Ackman could be wading in.

"I don't expect him to give up and change his stripes," said Brad Alford, founder of Alpha Capital Management, an advisory firm that invests in hedge funds. "Once an activist, always an activist," he said.

Ackman declined to comment beyond the filing.

The investor's latest move could lay the groundwork for a new proxy fight in 2010 after suffering an uncharacteristic defeat in 2009.

Keith Gottfried, a partner at the law firm Blank Rome who specializes in shareholder activism, said it would not be out of the question for Ackman to wage another battle, especially if Target's business continues to struggle and Ackman can show his proposals would have helped improve its business.

"When you get to the Christmas season ... and the numbers are not going to be that good, he's going to be able to say I told you so, I told you so," Gottfried said.

WATCHING HIS INVESTMENT SINK

Two years ago, the 43-year old investor, who already earned a fortune by prodding companies like Wendy's and McDonald's (MCD.N), began amassing a position in Target, known for selling inexpensive merchandise created by high-profile designers.

He watched the value of that investment sink as the financial crisis last fall roiled financial markets and caused shoppers to stop buying Target's trendy handbags and clothes.

Now, Ackman has made good on a three-month old promise to replace the options he owned in Target with common shares.

For his own investors, the move reduces risk, especially in Pershing Square IV, a special portfolio once worth $2 billion that invests only in Target. It suffered near fatal losses at the start of the year, when Target's stock plunged 51 percent from the beginning of September -- before the financial crisis unfolded -- until the end of February.

By eliminating any whiff of financial engineering by converting his holdings into common shares, Ackman, who is well-respected among Wall Street investors and often has the ear of government officials, casts himself as an average stock investor, just like many other Target owners.

The move could help erase an impression that dogged Ackman during the bitter proxy fight, when critics accused him of pressing for change at Target so he could boost his own returns, pocket a payout, and then run.

For months Ackman said his independent slate of five directors could inject new blood into a staid board to help Target's management find better ways to compete with arch-rival Wal-Mart Stores Inc (WMT.N). For example, Jim Donald, a former Wal-Mart executive and former CEO of Starbucks would be helpful in expanding Target's food offerings, Ackman argued.

Previously, Ackman had proposed a real estate plan that he said would help boost the stock price and again urged Target to get rid of the remainder of its credit card business.

Target said Ackman was pursuing a risky plan and urged shareholders to stick with the old board members.

Target could not be reached on Tuesday 11 August for comment on Ackman's move.

(Reporting by Svea Herbst-Bayliss and Nicole Maestri. Editing by Robert MacMillan)

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