Key Points:
1. Hedge fund manager William Ackman saw an opportunity to shake up the board of directors at Target, but the company used its marketing muscle to put down the challenge.
2. The campaign had all the makings of a classic, well-executed political campaign with direct communication with voters.
3. What made the campaign game-changing was the outpouring from the social media and blogging community (positive comments were 10 to 1 on Target’s side)—a strategy other proxy battles are now likely to employ.
My wife and I hold a modest amount of Target stock.
Of course, that’s nothing special. A lot of other small investors can say the same thing. We also happen to have a similar stake in about 20 other public companies, a smattering of mutual funds, bond funds, and overseas investment funds. Again, nothing special.
Like many of you, we own stock in companies with far poorer corporate track records (cough, financial stocks, cough) than our red bull’s-eye friends. But this time, the bull’s-eye was on Target’s back, and hedge fund financier William Ackman was itching to take aim during the recent proxy vote battle.
But this proxy fight was different. It involved small investors like us. Which it almost never does. Which made it very interesting. But more on that in a moment.
A two-paragraph background is helpful: The fight with Ackman’s Pershing Square Capital (and its 7.8 percent stake in Target) was long in coming. His group has been at odds with the Target board of directors and top management for many months, primarily over what Ackman saw as missed opportunities to boost share values by slicing off and selling key Target assets—most recently its real estate holdings. There are other issues, but this was the big one.
With a significant dip in Target’s share price over the last couple of quarters (notwithstanding a recent rebound), Ackman saw his chance to make a move on the board during the company’s annual shareholder meeting last week. In essence, he wanted to replace four board incumbents with his own slate of friendlies and use the new spots to gain a new and powerful voice. The first volley in a classic corporate raid. The board and upper management disagreed. And the fight was on.
(To get a broader picture of the whole situation, Marketwatch assembled a pretty comprehensive review.)
As is probably obvious, our stock holdings don’t get to the 1 percent to 2 percent level that would have warranted a personal visit from Target CEO Gregg Steinhafel.
That’s how most proxy fights go, only the larger shareholders are involved because (mathematically) they are the only ones who matter in the voting.
I was wrong this time.
By all accounts, Mr. Steinhafel did a fine job of convincing large shareholders to stick with the current board. But that was expected. Here’s what wasn’t: Target’s groundbreaking micro-marketing strategy.
Here’s how it worked.
My wife and I received no less than nine separate communication touch-points from Target. There was the ballot itself, which is usually all you get as a small fry like us. There was an invitation to the shareholder event. With directions. There was a letter explaining the ballot. Very helpful for non-institutional investors. There were two letters explaining Target’s position. In English. There were bios on each of the four “at risk” board members. In emotionally-written English. There was even a very-polished “Vote the White Proxy” fold-out brochure (as opposed to Ackman’s slate of candidates on the “gold” proxy). Great use of a simple color-based message along with an easy-to-understand recap of Target’s rationale.
All nice.
Then there were the phone calls. The first caller made sure I knew why I should “vote the white proxy” and asked if I would be attending the shareholder meeting or voting by mail/Internet. A second voice message reminded me of the date and time of the meeting, told me whom to call if I needed another ballot, and reminded me how Target felt I should vote.
Very nice. Almost “political” in execution.
As a sidebar, had Target investor relations had my e-mail, I would have received updates there as well.
Communication from Pershing Square (which also presumably has access to the same public information): Nothing.
All that said, if this effort had just been about Target’s direct communication to small investors, the campaign would have been interesting and effective, but not necessarily special.
But here’s where it gets much better.
The unleashing of the blogging and social media community was like nothing I have seen in investor relations. To test my assumptions, I performed a brief content analysis on blog content and comments over the past 30 days. Here are the results:
Top five topics:
1. References to Target as a well-run company
2. References to Midwest values (as opposed to “New York/Wall Street values”)
3. The dangers of selling-off Target’s real estate holdings
4. Background on Ackman’s “corporate raider” reputation
5. Comparisons of Ackman to Bernie Madoff and Tom Petters (although there is no connection between the men, and absolutely no indication that Ackman is running a Ponzi scheme)
Overall pro-Target to anti-Target: 10 to 1. It wasn’t even close.
Clearly, the blogosphere knew what buttons to push.
Am I saying the blogging was “planted” by Target? Absolutely not. What I am saying is that the micro-marketing provided the community with the ammunition it needed—talking points. And it would not have happened had Target not reached the little guys.
All for $11 million.
A bargain. Pershing Square could have done it too, but it seemed to think this was a 1980s “Den of Thieves” repeat. But Target was loaded for the consumer-generated media bear, and it put its electronic bull’s-eye square on Ackman’s back. The company clearly wanted to send a message: Don’t just “win,” but “win big.”
And it did. By capturing more than 70 percent of the vote.
You could look at it another way: Target leveraged its greatest skill (marketing) to protect its greatest asset (its corporate integrity).
Proxy fights—I think—will never look the same again.
Related Links:
“Den of Thieves” Treatise on the 1980s heyday of corporate raids
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