Target Corp shareholders dealt a blow to activist investor William Ackman on Thursday, rejecting his slate of proposed directors and voting instead to keep four incumbents on the retailer's board.

Despite a tearful appeal in which he invoked Martin Luther King Jr.'s famous I Have a Dream speech in a final effort to win votes, Ackman did not come close to gaining any seats on the board.

Target, which spent roughly $11 million defending itself during the proxy contest, said that, based on a preliminary total, each of its four nominees received support from more than 70 percent of the shares voted.

Each of the five nominees on Ackman's slate received support ranging from the high-single digits to the low 20s in terms of the percent of votes cast, the retailer said.

Target also said shareholders voted in its favor to set the board size at 12. Ackman wanted it set at 13.

We're disappointed, said Ackman, whose Pershing Square Capital Management has a 7.8 percent stake in Target, of the results. We'd love to be on this board, but shareholders voted.

His said a pledge made earlier in the week to remain a Target shareholder for five years was conditioned on winning a seat on Target's board. With no seat on the board, he said he now had more flexibility with his Target holdings, although he expected to be a long-term holder.

Target shares fell 1.2 percent, or 46 cents, to $39.14 in Thursday's New York Stock Exchange trading.

The pressure on the stock could be over concerns that Pershing Square will sell some, or all, of its position, but we do not anticipate that will occur given that it would be damaging to Mr. Ackman's credibility, Telsey Group analyst Joseph Feldman said.

The hedge fund director launched his proxy contest in March after Target rejected his proposal to spin off the land under its stores into a real estate investment trust to boost its stock price.

He has since said he was running the proxy contest to add executives to Target's board who have expertise in credit cards, real estate and food retailing.

But Target argued he sought the seats as a way to push through his risky real estate transaction.

Ackman certainly raised the awareness of corporate governance, and likely helped Target to be more focused than ever on this important issue, Telsey's Feldman said.

UNUSUAL STRUGGLE

The power struggle was unusual because many analysts and investors have praised Target as a best-in-class retailer with a capable management team.

But some investors acknowledged Ackman, who is known for well-researched and often successful proxy battles, could have brought a fresh perspective to Target's board and pushed the retailer to explore new business opportunities.

In his speech, Ackman said the annual meeting was a great day for shareholders because the contested election meant they were being given a choice as to who they wanted to vote to have on Target's board.

Let me end by saying that I have a dream. ... a dream deeply rooted in the American dream, Ackman said. A dream that one day board members will be selected purely based on character, competency and relevancy of experience.

During the meeting, which held at an unfinished store outside of Milwaukee under overcast skies, Target Chairman and CEO Gregg Steinhafel repeated that its current board was the right one to lead the retailer.

Once the meeting was over and the preliminary results were announced, Steinhafel said he would now be able to refocus on the company's retail and credit operations, and spend more time in its stores.

It's a challenging environment and there are a lot of retail companies that are struggling and our same-store sales are not where we'd like them to be, he said.

Target shares are up about 15 percent this year, while those of rival discounter Wal-Mart Stores Inc are down roughly 12 percent.

But Target's shares have fallen 33 percent since April of 2007, when Ackman began accumulating his stake, while Wal-Mart shares have risen 5 percent during that time.

Target's business faltered amid the recession as shoppers pared back purchases of its clothes and home decor, and stuck to buying basics, such as food or medicine -- a trend that favored rival Wal-Mart.

Target is now trying to add more food to its merchandise assortment to lure shoppers into its stores more frequently, a strategy it again highlighted at the meeting.

(Reporting by Nicole Maestri and Lisa Baertlein; Editing by Derek Caney and Andre Grenon)

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