3rd UPDATE: Ackman's Pershing Square Cuts Stake In Target To 4.4%

Bill Ackman is no longer required to file as an activist shareholder of Target Corp. (TGT).

Ackman's Pershing Square Capital Management, which lost a bitter proxy battle for Target board seats earlier this year, lowered its economic interest to 4.4% of Target's outstanding shares, according to an amended Schedule 13D filing with the Securities and Exchange Commission. That's down from 7.8% in May. The lower exposure is due to some expired options.

The move doesn't necessarily mean that Ackman has soured on Target shares, which are up more than 20% this year. Some of Pershing Square's holdings - like Sears Canada Inc. (SCC) - have been in the portfolio for years. Others, like Dr. Pepper Snapple Group Inc. (DPS) were shorter-term investments. Plus, Ackman has used options before in his investments, which can make share-ownership fluctuate from quarter to quarter.

Filers of 13Ds, which typically own more than 5% of a company's shares and intend on communicating with management or forcing changes at companies, must file within a few days after every transaction in a company's stock. Once under the 5% threshold, such filings aren't necessary.

During the battle for board seats, critics had asked Ackman if he was just a short-term investor who would sell part or all of his Target stake if he lost - or even won - the proxy fight. Ackman responded that he would convert options to stock at some point and that some options would expire, but that he would not quickly liquidate his stake. But some of those options were out of the money, and have now expired. That means Pershing Square now has a lower economic interest in Target's 752.3 million outstanding shares.

Back in May, Pershing Square in a proxy fight tried to get five people - including Ackman - onto Target's board and replace incumbent directors. Ackman has been critical of Target's decision to remain in control of its credit-card business, unlike other retailers. He had also proposed an unorthodox real-estate transaction in which Target would have spun off the land under its stores as a publicly traded real estate investment trust.

The discount chain's sales have been struggling for more than a year as shoppers began eschewing its cheap-chic offerings for a back-to-basics approach from rivals such as Wal-Mart Stores Inc. (WMT). Pershing Square started buying Target stock and options in 2007, when shares traded in the $50s and $60s.

Shares closed Tuesday up 22 cents at $42.20. Target declined to comment.

According to filings, Pershing Square's May 26 Target stake consisted of 3.3% in common shares and 4.5% in stock-settled call options. Between then and last week, Pershing Square sold options and bought common stock, decreasing its beneficial ownership to 4.4% - 3.5% in stock and 0.9% in options.

-By Joseph Checkler, Dow Jones Newswires; 212-416-2152; [e-mail]

(Kerry Grace Benn and Karen Talley contributed to this article.)