This is a video of today’s presentation from Pershing Square’s Bill Ackman’s updated presentation that addresses Target’s (TGT) concerns.
Disclosure (“none” means no position):None
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Ackman Discusses Sears Sale
From Pershing’s Q3 letter.
The reason for the post is I have gotten many email over the past few weeks asking “should I sell my Sears”. I have have said no, and it appears that Ackman agrees based on what was said above.
I sale reason was interesting. At the Value Investing Congress I attended at Ackman’s press briefing he said in a question regarding Sears (SHLD) and any potential activism on his part, “I think when we invest in a company with a controlling shareholder it is their activism we are dependent on”.
In short, Ackman has decided he does not want to invest in situations in which he is powerless to enact the change he wants in the time frame he wants it. Notice he did not say they were bad investments, just that he essentially did not want to NOT be the activist.
Disclosure (“none” means no position):Long SHLD
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Pershings Q3 Letter
From Bill Ackman..
Pershing Square Q3 2008 Investor Letter
Disclosure (“none” means no position):
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GM / F Videopaloza ($gm) , ($f)
Paulson on the subject:
Bill Ackman:
Steven Roach comments on it:
Bay City, Michigan Mayor
GM (GM), Ford (F) and Chrysler heads groveling before Congress
Another analyst:
Some guy named Dave in his bedroom:
Disclosure (“none” means no position):none
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Pershing Square’s Bill Ackman Files 13F
Some real surprises here
Added:
AIG (AIG)= 32 million shares plus call options on 400k shares
Target (TGT)= # of shares owned stayed the same but call options went from 12,000 to 2 million shares
MasterCard (MA)= 469k shares
Visa (V)= 2.69 million shares
Sold:
Sears Holdings (SHLD)= From 6.7 million to 500k shares
Wendy’s (WEN)- From 130 million to 55 million shares
Barnes & Noble (BKS) & Borders Group (BGP) holdings stayed the same
Disclosure (“none” means no position):Long BGP, SHLD, none
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Great line…”the gov’t owns 35% of every corporations income and 40% of every wealthy individual through taxes and that is quite an off balance sheet asset”.
Ackman goes into details on credit default swaps (CDS), hedge funds, ratings agencies, and bond insurers.
Other quotes:
“Up until recently the world was a world that believed” (in ratings)
“Regulators deferred to credit ratings agencies”
“This is the single best time in my career to invest, the spread between value and price is the widest it has been”
Disclosure (“none” means no position):
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Ackman on Charlie Rose Tonight
I am sure Ackman will have plenty to say about GM (GM), Ford (F) and what Congress is talking about doing. Thanks to reader Ryan for the heads up
Disclosure (“none” means no position):
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Wow
In its annual report in February Leucadia (LUK) booked an $85 million loss on the investment in Target (TGT).
In the most recent 10-Q for the first nine months of 2008 Leucadia is booking another $27.7 million dollar loss on the investment.
Pershing head, Bill Ackman recently unveiled his plan for the retailer. One has to assume as his options, dated 1/2010 get closer to coming due he will begin to put real pressure on the retailer.
Disclosure (“none” means no position):none
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Target Responds to Ackman’s Proposal
So here is Target’s (TGT) response ti Bill Ackman’s proposal yesterday.
Oct. 29, 2008–Target Corporation (NYSE:TGT) confirmed today that Pershing Square has asked the company to consider the spin-off of a separate publicly-traded real estate investment trust (REIT) that would own substantially all of the land currently owned by Target. Pershing Square’s views of the consequences of executing this proposed transaction were publicly disclosed in a meeting hosted by Pershing Square earlier today. As previously indicated, Target has been evaluating similar ideas proposed by Pershing Square, with the assistance of Target’s outside advisors, including Goldman Sachs since May 2008.
While the company has not yet reached a conclusion regarding the merits of these ideas, its analysis raises serious concerns on a number of important issues, including:
— The validity of assumptions supporting Pershing Square’s
market valuation of Target and the separate REIT entity,
— The reduction in Target’s financial flexibility due to the
conveyance of valuable assets to the REIT and the large
expense obligation created by the proposed lease payments,
which are subject to annual increase,
— The adverse impact that the company believes the proposed
structure would have on Target’s debt ratings, borrowing costs
and liquidity, exacerbated by current market conditions,
— The frictional costs and operational risks, including tax
implications, of executing Pershing Square’s ideas, and
— The risk of diverting management’s focus away from core
business operations over an extended time period to execute
such a complex transaction, particularly in the current
environment.
Target will continue to evaluate the most recent assumptions and ideas provided by Pershing Square in today’s public presentation and will provide updated perspective, as appropriate, in the near future.
Target remains firmly committed to creating value for its shareholders, as evidenced by its long-term financial performance, extensive record of strong corporate governance practices and a number of recent actions authorized by its Board of Directors and executed by management. For example,
— For the 10-year period through September, 2008, total return
to Target Corporation shareholders averaged 11 percent
annually, well in excess of the 3 percent average annual
return on the S&P 500 Index and the 7 percent average annual
return on the S&P Retail Index for the same period.
— In May 2008, Target announced the sale of a 47 percent
interest in its credit card receivables to JPMorgan Chase.
This agreement provided Target with sufficient liquidity to
implement its business plans, including previously announced
capital investment and share repurchase activity for 2008.
— In November 2007, Target announced that its Board of Directors
authorized a new $10 billion share repurchase program,
replacing the previous authorization. Since the inception of
this share repurchase program through September 2008, Target
has repurchased a total of 93.3 million shares of its common
stock for a total cash investment of $4,826 million ($51.70
per share).
Target Corporation’s retail segment includes large general merchandise and food discount stores and Target.com, a fully integrated on-line business. In addition, the company operates a credit card segment that offers branded proprietary and Visa credit card products. The company currently operates 1,684 Target stores in 48 states.
Target Corporation news releases are available at www.target.com.
CONTACT: Target Corporation
John Hulbert, 612-761-6627
or
Susan Kahn, 612-761-6735
or
Lena Michaud, 612-761-6796
FULL RELEASE
Disclosure (“none” means no position):NONE
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Here is the audio from the 2 hr presentation and Q&A..This took way too much effort as one thing after another went wrong…sorry for the delay. Best line? He calls Wal-Mart (WMT) a “flea market”.
The audio is a little fuzzy in the beginning but about 1:18 min. in I was able to fix it.
Audio:
Part 2
Here were the initial plans that were discussed with management of Target (TGT) and the issues with each one.
Ultimately this is how they view the retailer::
Ackman broke down the value of the new entities this way:
Disclosure (“none” means no position):None
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Ackman Files 13F/A In EMC
Pershing and Bill Ackman are going tech…
Pershing and Bill Ackman control 38.9 million shares of EMC (EMC) in a just released SEC filing. That comes to roughly 2% of the outstanding total.
FULL FILING
Disclosure (“none” means no position):None
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PershIng Settles Longs Drug Swaps
Bill Ackman has settled his Longs Drug (LDG) total return swaps with the CVS (CVS) biuyout complete.
From the filing:
“In connection with the successful tender offer by Blue MergerSub Corp., an indirect wholly-owned subsidiary of CVS Caremark Corporation, to purchase all outstanding shares of common stock of the Issuer, certain counterparties to Pershing Square’s Swaps have terminated certain of the Swaps. As a result, these Swaps were settled in cash between such parties relating to 2,054,100 notional shares (the “Settled Swaps”). In accordance with the terms of the Settled Swaps, the applicable counterparty was obligated to pay to the applicable Pershing Square Fund any positive price difference between the initial reference price (ranging from $53.41 and $70.36) and the final valuation price ($71.50). As a result of the termination of the Settled Swaps, the Reporting Persons no longer have long economic exposure to an aggregate of 2,054,100 shares. As cash-settled total return swaps, the Reporting Persons had no discretion over the issue of any extraordinary event like a tender offer. Consistent with the International Swaps and Derivatives Association’s (“ISDA”) protocols, as the calculation agents for extraordinary events, the counterparties exercise the discretion afforded to them as calculation agents, in accordance with the ISDA definitions for equity derivatives and in good faith and in a commercially reasonable manner.”
Swap Trading Data
FULL SEC FILING
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Ackman to Present on Target Tomorrow
Pershing’s Bill Ackman has a new plan for Target (TGT). His will present it tomorrow at 1:30. I will be on the presentation and comment accordingly.
New York, NY, October 28, 2008 – Pershing Square Capital Management, L.P. announced today that it will host a public presentation on Wednesday, October 29, 2008 where it will detail a potential transaction that Pershing Square believes will build long-term value for Target Corporation (NYSE: TGT) and all of its stakeholders. All parties are welcome to attend the presentation, which will be of particular interest to investors and analysts focused on retail, real estate, fixed income and credit.
Pershing Square is a long-term investor in Target. Since acquiring its initial stake in April 2007, Pershing Square has beneficially acquired slightly less than 10% of the company’s outstanding common stock.
Target’s thoughtful and constructive approach with shareholders has been instrumental to Pershing Square’s work in developing a potential transaction. Pershing Square believes that the insights gained by sharing the potential transaction in a public forum will benefit Target and all of its stakeholders.
The presentation will be based solely on publicly available information, as well as assumptions, estimates and projections of Pershing Square.
If anyone has any questions, I will try to ask them. Just leave them in the comments
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Sears Holdings "On Sale"
Justin Siegel writes:
Sears (SHLD) is a Blue Light Special!
When I look for investment opportunities, I look primarily for 3 things:
1. Management
1. Are they aligned with shareholders?
2. Are they smart, proven?
3. Do they run the business like an owner?
2. Business
1. Is it a good business?
2. Is it easy to understand, for me at least?
3. Valuation
1. How much do I think it’s worth and how much below that value is it selling for?
How does Sears stack up?
1. Management
1. Effectively Eddie Lampert through his hedge fund, ESL, controls Sears, through a majority stake of common shares. In short, he’s staked his personal fortune, his hedge funds fortune, his reputation, etc. on the Sears common shares, which by the way represent the majority investment of his hedge fund portfolio.
2. Yes, Eddie Lampert is smart. Ivy league graduate, self-made billionaire, etc. Is he proven? He has racked up decades of 20%+ returns, so he’s a proven investor. Even a proven retail investor, but not necessarily a proven operator. A yellow flag in my opinion.
2. Business
1. Retail is a decent business. Not rocket science.
2. Retail is easy to understand, though Sears has many facets, which I think are often overlooked, or at least currently by the market.
3. Valuation
1. The short answer is I think Sears is worth A LOT more than $8 billion dollars. Why? Well, here are some of the juiciest parts:
1. Brands – Kenmore, Craftsman, LandsEnd, Diehard, and even Sears itself have very solid brand equity. Even after years of being ignored and poorly run, these brands are respected and valued throughout North America.
2. LandsEnd – Beyond the brand, this is a good business in its own right that has been churning out record years with one of the highest converting retail websites in the country. Sears bought it a few years back for shy of $2 billion. Probably worth at least that much.
3. 70% stake in Sears Canada, which has been doing very well.
4. Cash – $1.5 billion last quarter on its balance sheet
5. Sears.com – one of the largest, fastest growing, and improved websites of any major retailer. Still work to be done, but improvements galore.
6. Servicing network – Largest appliance and lawn equipment repair service in the country. I like a business where they sell you the washer and dryer once, and then get paid to maintain and repair to too.
7. Eddie Lampert – You get one of the world’s best capital allocators for free. Over time this will matter significantly, as it does in all businesses.
8. Real Estate – This frankly is the least interesting asset to me because it only becomes valuable if the rest of the business is failing, which it isn’t. Sears is profitable on a reported earnings and cash flow basis. However, Sears does own somewhere between $7-$20 billion in real estate depending upon who you believe.
And as a kicker, today you can buy Sears for LESS than Bill Ackman, Monish Pabrai, Bruce Fairholme, Bill Miller, and several other brilliant investors. It’s tied to the economy like everything and everyone, so it may not being going anywhere fast, but… What are some potential catalysts? Eddie Lampert making a great acquisition, earnings surprise, faster economic recovery. I think it’s a Blue Light special, but it’s up to you to cast your own votes.
Disclosure (“none” means no position):Justin is Long SHLD
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This is a follow-up to a post from July. Isn’t it funny how when we need the money the politicians are not screaming about this anymore? In fact, one could make the argument they are begging for SWF Investment now.
File this under “be careful what you wish for, you just might get it”. The good news? SWF’s are not investing large sums in US businesses. The bad news? SWF’s are not investing large amounts in US businesses.
The latest Monitor Group analysis is an update to its June 2008 report: “Assessing the Risks: The Behaviors of Sovereign Wealth Funds in the Global Economy.” Key findings of the latest analysis include:
§ In the second quarter of 2008 (Q2 2008), funds in the Monitor SWF transaction database executed 43 deals totaling $26.5 billion. In contrast those funds executed 42 deals totaling $58.3 billion during the previous quarter (Q1 2008).
§ SWFs continued to invest actively in emerging markets. In Q2 2008, more than half the deals and funds invested were in emerging markets (vs 40% in Q1). SWFs carried out 26 deals and invested $15 billion in BRIC and non-OECD countries.
§ Investment in North America dropped dramatically. In Q2 2008, four deals totaling less than $1 billion were received by North America. In contract, this region received seven deals totaling $23 billion during the previous quarter (Q1 2008).
§ Half of the deals by value in Q2 were in real estate (shopping centers and real estate management companies). Real estate had the largest number of deals (12) and the highest investment ($13.7 billion) in Q2 2008.
§ During Q2 2008, investment has shifted away from financial services. SWFs carried out 10 deals and invested $4 billion in the financial services sector during Q2 2008. In the previous quarter (Q1 2008), funds carried out 13 deals totaling $43.4 billion.
“Our transaction data show that SWFs have focused recent equity investment away from volatile geographic markets and sectors, like North America and financial services, and are instead seeking more attractive returns in emerging markets and other sectors, including real estate,” said Drosten Fisher
The country taking the lion share of the business? India. There was heavy investment in the healthcare, consumer and aerospace sectors in India in Q2. This also follows the trend they exhibited in other nations. This is particular distressing to those who are looking for funds to flow to the US. Those are not sectors in the US that lend itself to foreign investment (thing Wal-Nart (WMT), Target (TGT), GE (GE) or United Health (UNH).
But, for shareholders of wither Wal-Mart (WMT), GE (GE) or even Dow Chemical (DOW) who are aggressively expanding into the region, it is good news. A steady flow of funds to the region raises the standard of living for all and by default the sales prospects for those doing business there.
Bill Ackman at the Value Investing Congress commented on “opportunistic capital” (hedge funds and SWF’s). He said that “opportunistic capital is always the first in” when it comes to investment (listen to press conference here). It should be noted that Russia has receive zero deals. For those thinking of investing overseas, if those with the money are avoiding a country, perhaps you ought to think twice before committing funds there? Based on their activity, India and Brazil seem to be the nation’s of choice both for opportunity and safety of capital.
Now, for those afraid of SWF’s, please note the following graph. 
A disclaimer: This is my chart and Monitor Group in no way implies the “Bailout” equates the US to a SWF. This chart is purely for comparison purposes.
What is the point? SWF’s are a nice boogey man for people intent on stirring things up but they really are dwarfed not only buy US Mutual funds but what our gov’t itself. Let’s not forget, $250b of the US investment in banks wasn’t an option for the banks….that is not an issue with SWF’s.
Q2 report available by email akrull@racepointgroup.com
About Drosten:
Drosten Fisher is a principal with the international strategy consultancy Monitor Group. His focus is serving government and commercial clients in the areas of economic competitiveness, national security and international finance. A Middle East specialist, he speaks Arabic and has lived and worked in the region. Before joining Monitor, Drosten was a researcher for former Director of Central Intelligence George Tenet on his memoir At the Center of the Storm.
He was educated at Oxford and Georgetown and is a term member of the Council on Foreign Relations.Drosten is a co-author of a recent Monitor report into sovereign wealth fund investment and is a regular speaker and commentator on Middle Eastern investment, politics and business.
Disclosure (“none” means no position):Long WMT, GE, Dow , none
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