Updated from 12:36 p.m. EDT

Target ( TGT) is set to face activist hedge fund manager William Ackman in a proxy fight for control of five spots on the retailer's board of directors.

Ackman, the founder and chief executive of Pershing Square Capital Management, offered five nominees for board seats that will come up for election at Target's annual shareholder meeting. If elected, Pershing Square's nominees will hold five of the 13 seats on Target's board.

Pershing Square Capital is Target's third-largest investor, with beneficial ownership of approximately 7.8% of its outstanding common stock, through shares and options. Ackman has long argued that Target's stock is undervalued and has sought to unlock shareholder value.

In addition to Ackman, Pershing Square's nominees include Winthrop Realty Trust ( FUR) CEO Michael Ashner, former Starbucks ( SBUX) CEO Jim Donald, Professor Ronald Gilson and Richard Vague, the former CEO of First USA, Juniper Financial and Barclays Bank Delaware.

"We believe that our nominees will bring insight, accountability and fresh and relevant perspectives to the Target board," Ackman said in a statement. "If elected, we believe they will substantially improve Target's ability to navigate through the current economic environment while increasing shareholder value over the long-term."

Target shot back at Pershing Square and Ackman, calling the proxy contest "costly and disruptive." Instead, Target recommended that shareholders re-elect McDonald's ( MCD) executive Mary Dillon, Wells Fargo ( WFC) Chairman Richard Kovacevich, Telstra CEO Solomon Trujillo and George Tamke, a partner at private equity firm Clayton Dubilier & Rice.

The retailer argued that the re-election of its own four nominees "is in the best interest of Target shareholders." Target did acknowledge that its nominating committee had considered endorsing Ackman as well as another Pershing Square nominee but decided against it after careful consideration.

Pershing Square said it expects to file a preliminary proxy statement with the Securities Exchange Commission in the coming weeks and, upon clearance by the SEC, to distribute definitive copies of the proxy statement and proxy cards to Target shareholders.

Target said it will be distributing proxy materials to shareholders of record as of March 30. The company will hold its annual shareholder meeting on May 28.

Shares of Target rose 5.6% Tuesday to close at $30.45, although the stock is down 11.8% year to date and 37% over the last year. By comparison, rival Wal-Mart ( WMT) is also down more than 10% year to date, but shares have actually gained 0.1% over the last year.

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