With Target's outlook brightening, board fight could be off the table

Activist investor's William Ackman's fight against Target Corp. (TGT) just got tougher.

Like other retailers, including Wal-Mart Stores Inc. (WMT), Saks Inc. (SKS) and Macy's Inc. (M), the discount retailer reported better-than-expected earnings yesterday. Earnings at the Minnesota-based company fell to $522 million, or 69 cents per share, from $602 million, or 74 cents a year earlier. Sales gained 0.4 percent in the first quarter to $14.4 billion. The results surpassed the 59 cent profit and $14.81 billion in revenue estimate of analysts surveyed by Thomson Reuters. Target did not give any forward guidance. The stock is up over four percent in early trading.

"Very importantly, we believe this improved stability and predictability in key aspects of both our retail and credit card segments reflects the resilience of our strategy and underscores our ability to generate substantial value for our shareholders over time," said Chief Executive Gregg Steinhafel in the earnings release.

Shares of Target have surged more than 21 percent this year along with the rest of the market. Still, the stock is off 22 percent over the past 52 weeks as shareholders grew concerned about shoppers trading down to Wal-Mart and lower-priced chains. Ackman, whose Pershing Square Capital Management owns more than seven percent of Target through stocks and options, has lost hundreds of millions on his investment.

"He has lobbied for many changes at Target, including a transaction to capitalize on its real estate, and a reduction to its credit-card exposure," according to Dow Jones.

The fight between Target and Ackman may hinge on the weight shareholders give to proxy advisory services. CNBC's David Faber is among those who argues that shouldn't be the case: "Why should any institution outsource the decision of whom to vote for in a particular proxy fight to an outside firm?"

It's a good point. Money managers are paid quite handsomely to make tough decisions about which managements are working in the best interest of shareholders and which are not.

Plus, the proxy advisory services don't always agree. RiskMetrics is urging Target investors to back the efforts of Ackman and former Starbucks Corp. (SBUX) Chief Executive James Donald to join the retailer's board. The firm rejected Pershing Square's other candidates. As Dow Jones noted, Proxy Governance is supporting two of Ackman's nominees, while Egan-Jones backs none of Ackman's nominees but says holders should withhold votes for two of Target's incumbents. Glass Lewis & Co. said Tuesday it is backing all four of Target's nominees.

Ackman has acused Target's board of being insular and unwilling to listen to new ideas. But it's hard to convince investors that a company needs to be fixed if it is not broke.

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