Target shareholder revises real estate proposal
Anne D'innocenzioInvestor William Ackman offered some tweaks Wednesday to his plan aimed at increasing the value of Target Corp., saying as much as 20 percent of the real estate investment trust he was pushing for could be spun off in an initial public offering.
That transaction would raise $5.1 billion, allowing Target to pay down its debt and maintain its credit rating, he said.
"This is not just a transaction that creates financial value. It creates long-term strategic value for the company," said Ackman, who runs hedge fund Pershing Square Capital Management, which owns about 10 percent of the discounter.
Ackman, who has long been pushing Target to do more with its assets, said he revised the proposal to include the IPO after hearing concern from investors and the discount retailer itself about debt rating, borrowing costs and liquidity.
He has been in discussions with Target's board since May about the plan. In a conference call with hedge fund managers and investment analysts on Wednesday, he said he has not received "formal feedback" about the revised plan from Target, but hopes the retailer will "shortly approve this or a similar transaction."
"Our analysis is still in process," said Target spokeswoman Lena Michaud. "No decision has been made yet."
Shares of Target slipped $3.10, or 10 percent, to $26.96 as investors weighed the revised proposal.
Ackman unveiled a plan last month that involves creating a real estate investment trust that would take ownership of the land Target owns underneath its stores and distribution centers and spin it off tax free to existing shareholders.
Under the proposal, the retailer would retain ownership of the buildings and would rent the land back under a 75-year lease on attractive terms. Ackman, who pushed Target to sell off part of its credit card portfolio earlier this year, believes the transaction would create more value for the company.
Ackman said Wednesday that the transaction would send Target's shares up from the 20-day average price of $37 to about $67 at the time of the IPO with a 12-month target of $80. He noted that it would take about six to nine months for the initial public offering to take place.
As consumers cut back amid a weakening economy, Target has struggled compared to discounters like Wal-Mart Stores Inc. since it has a heavy emphasis on non-necessities.
The Minneapolis-based retailer said Monday that third-quarter profit for the three months ended Nov. 1 fell 24 percent to $369 million, or 49 cents per share, from $483 million, or 56 cents per share, last year. That was just above the average of 48 cents per share predicted by analysts polled by Thomson Reuters.
Revenue rose 2 percent to $15.11 billion from $14.84 billion last year, falling short of the $15.24 billion analysts expected.