Target Corp shareholders reelected its four incumbent directors, the retailer said on Thursday, dealing a defeat to activist investor William Ackman, who launched a heated proxy contest seeking five seats on its board.

The company also said shareholders voted to set the board size at 12, as the company wanted. The retailer announced the preliminary results at its annual meeting.

Ackman, whose Pershing Square Capital Management has a 7.8 percent stake Target, said he was disappointed by the vote, which was held at an unfinished Target store outside Milwaukee. But he expects to be a long-term holder, personally, or otherwise.

Ackman said his promise to remain a Target shareholder for five years was conditioned on his being on the board, so he now has more flexibility with his Target holdings.

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

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

Mr. 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.

When asked about the results of the vote, Target Chairman and CEO told reporters he would now be able to focus more on the company's retail and credit operations.

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.

Some investors have acknowledged that 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.

Ackman's slate consisted of himself; Jim Donald, former CEO at Starbucks Corp ; Richard Vague, the former CEO of Visa credit card issuer First USA; Michael Ashner, chairman of Winthrop Realty Trust; and Ronald Gilson, a corporate governance expert.

Target's nominees were Mary Dillon, a marketing executive at McDonald's Corp , George Tamke, a partner at private-equity firm Clayton, Dubilier & Rice, Richard Kovacevich, chairman of Wells Fargo & Co , and Solomon Trujillo, who has resigned as CEO of telecommunications firm Telstra Corp.

Shares were down 85 cents at $38.75 in late trading on the New York Stock Exchange.

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

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