This is brilliant…..and oh, he says the value of Longs Drug (LDG) is $90 to $95 or about $20 higher than the current offer price.
Disclosure (“none” means no position):none
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Here is the letter send from Bill Ackman to Hank Paulson Friday regarding the rumored bailout of Fannie (FNM) and Freddie (FRE) by the governement.
September 5, 2008 The Honorable Henry M. Paulson, Jr. Secretary United
States Department of the Treasury 1500 Pennsylvania Avenue, N.W.
Washington, D.C. 20220
Re: Fannie Mae/Freddie Mac Restructuring
Dear Secretary Paulson:
We understand that a Treasury plan for Fannie/Freddie (“the GSEs”) may
be announced this weekend. We thought you might find useful some further
thoughts on potential GSE solutions.
As you are likely aware, we had previously distributed a proposed
restructuring plan for the GSEs. In that plan, under a prepackaged
conservatorship, equity interests would be extinguished, subordinated
debt would be exchanged for warrants, and senior debt would be exchanged
for new senior debt and common equity in the newly recapitalized
entities. The government would write a put to the new common equity
holders which would expire in three years.
It appears, however, that the GSEs may need help more quickly, and
conservatorship may not be triggered until the GSEs are formally
determined to be undercapitalized. As such, in the event the government
needs to inject capital immediately, we suggest you consider the
following transaction (“the Transaction”).
In order to minimize risk to taxpayers while being equitable to other
constituents, we suggest that the Treasury consider purchasing senior
subordinate debt in the two companies in an amount sufficient to address
their capital needs in the short to intermediate term. This senior sub
debt would be junior in right of payment to the outstanding senior
unsecured debt and senior to the outstanding sub debt, preferred stock,
and common equity. We refer to the outstanding sub debt, preferred and
common stock as “the Subordinate Securities.”
The issuance of senior sub debt is permitted under the GSE legislation
and under the existing terms of the outstanding debt and equity
securities of the two entities (please see the attached memo for further
details). As a condition of Treasury’s purchase of senior sub debt, the
GSEs would defer the interest payments on the outstanding sub debt
(which can be deferred for as much as five years), and the dividend
payments on preferred and common stock. All of the Subordinate
Securities would continue to remain outstanding according to their
existing terms.
The new senior sub debt should have a market-based coupon and Treasury
should receive low-strike price warrants (penny warrants) for a
substantial portion, i.e., 49% of the two companies. The coupon and
warrant structure should be as close to fair-market-value terms as
possible. The ultimate determination of fairness would be the
willingness of non-government investors to purchase the Transaction
securities on the same basis as Treasury. As part of the Transaction,
the GSEs would deleverage their capital structures by paying down senior
debt from the free cash flow generated by their core businesses further
improving the position of the new senior sub debt.
The benefits of the Transaction are as follows:
• The Transaction can be accomplished under the existing terms of the outstanding GSE securities without any required consent other than from the GSEs.
• The new security would be senior in right of payment to the existing sub debt and preferred stock minimizing the risk to tax payers while providing substantial support to the outstanding senior debt that has been deemed implicitly guaranteed by the government.
• The new debt interest payments would be tax deductible, reducing the after-tax cost of capital to the GSEs, particularly when compared with preferred stock.
• In the event the outlook and performance of the GSEs and their assets were to improve dramatically, the senior sub debt could be redeemed, distributions to the Subordinate Securities could resume, and their values would increase accordingly.
• In the event that the GSEs’ fundamentals continued to deteriorate and they became undercapitalized, the GSEs could be placed in conservatorship. In
conservatorship, their balance sheets could be restructured along the
lines of our original plan or another plan with the Treasury’s senior sub debt treated preferentially to the Subordinate Securities, again minimizing risk to the tax payer.
• The Transaction would be fundamentally fair to all constituents and would respect the existing terms and corporate hierarchy of all outstanding GSE securities.
• The Transaction would minimize moral hazard issues for sub debt, preferred, and common stock investors.
Most importantly, we believe there are serious negative implications for
other large financial institutions in the event the Treasury were to
bail out Subordinate Security holders. The Treasury and OFHEO have done
substantial research on the benefits to capital market discipline from
large financial institutions’ issuance of subordinate debt, and the
destructiveness of the government implicitly or explicitly guaranteeing
such obligations.
See: Report to Congress “The Feasibility and Desirability of Mandatory
Subordinated Debt”, Board of Governors of the Federal Reserve System and
United States Department of the Treasury (December 2000), available at:
www.federalreserve.gov/boarddocs/rptcongress/debt/subord_debt_2000.pdf
“Subordinated Debt Issuance by Fannie Mae and Freddie Mac”, Valerie L.
Smith, Office of Federal Housing Enterprise Oversight, OFHEO WORKING
PAPERS, Working Paper 07 – 3 (June 2007), available at
http://papers.ssrn.com/sol3/papers.cfm” abstract_id=1000264;
“Signals from the Markets for Fannie Mae and Freddie Mac Subordinated
Debt”, Robert N. Collender, Samantha Roberts, Valerie L. Smith, Office
of Federal Housing Enterprise Oversight, OFHEO WORKING PAPERS, Working
Paper 07 – 4 (June 2007), available at:
http://papers.ssrn.com/sol3/papers.cfm”abstract_id=1000240 &rec=1&src
abs=1000264;
“Subordinated Debt and Bank Capital Reform”, Douglas D. Evanoff, Federal
Reserve Bank of Chicago, Larry D. Wall, Federal Reserve Bank of Atlanta,
FRB Atlanta Working Paper No. 2000-24 (November 2000), available at
http:// papers.ssrn.com/sol3/papers.cfm”abstract_id=252754.
To the extent the Treasury were to bail out the GSEs’ subordinate debt –
which was: (1) never implicitly guaranteed by the government, (2) always
rated below Triple A by the rating agencies, and (3) held by investors
who knowingly took on the risk of loss in exchange for a substantial
credit spread above the GSEs’ senior debt – it would endanger the
systemic benefits from subordinate debt issuance for every highly
leveraged banking institution in the world and the capital markets at
large.
Furthermore, we do not believe that the Treasury can purchase GSE sub
debt, preferred stock or common stock without incurring an immediate
loss to tax payers because of the enormous amount of existing debt
senior to these instruments. At a market coupon or dividend yield (to
the extent that one were to exist), any debt issued pari passu to the
existing sub debt, or preferred stock issued pari passu or even senior
to the existing preferred stock would require a yield that would be
uneconomic for the GSEs. No third-party investor would purchase these
securities regardless of their terms in light of their junior position
in the GSEs’ capital structure.
Please note that Pershing Square and affiliates own CDS on the
subordinate debt of the GSEs. We also note that nearly all participants
in the capital market debate on the GSEs are either long or short the
outstanding GSE securities.
We are contemporaneously releasing this letter to the public in the
interest of market transparency.
Respectfully,
William A. Ackman
Disclosure (“none” means no position):
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Retails is lousy now, we know that and Sears is in the unenviable position of being both a clothing retailer and a housing supplier (appliances, tools etc.). With the expected downturn there, how did we hold up and are the reason we invested in the company still valid??
In a word yes. Here are the key take-away points (more will be available when the 10-Q is filed Friday). Remember, I expected a small loss
– $500m inventory reduction
– Added 65 net stores since last year which consist of Home Appliance Showrooms, dealer stores and outlet stores, and have continued to expand online and multi-channel capabilities. In May they nearly quadrupled the number books, DVDs, music and software available at sears.com.
– CEO Bruce Johnson said, “We expect to generate higher EBITDA in the second half of this year as compared to the corresponding period in 2007 as we benefit from our lower domestic inventory levels and continued vigilant expense management. Given our year-to-date results and the state of the economy, our current full-year EBITDA forecast, which assumes flat to modest comparable store sales declines for the rest of the year, is comparable to, but no longer exceeds, last year’s EBITDA”.
– Repurchased $5.6 million shares in Q2 bringing outstanding count to 126 million as of 8/2 (watch the 10-Q Friday, Lampert is famous for buying shares between the end of the quarter and the 10-Q filing).
– Cash sat at $1.5 billion, down $100m from Q1.
– LT Debt reduced from $2.6b in Q1 to $2.2b in Q2
So, why did we buy Sears? Lampert was producing profits, reducing debt, buying back shares and fixing two bankrupt retailers (Kmart was BK and Sears was days away from it).
All of those items are still happening. Yes, profits are falling (key word being profits) but so are those at JC Penny (JCP), Home Depot (HD), Lowes (LOW), Macy’s (M) etc. What we want to know is, if we assume sales and profits are going to fall until the economy and in Sears case, housing stabilizes, what is happening to the financial condition of the company?
In the case of Sears, the balance sheet is in the top echelon of retailers with the exception of Wal-Mart (WMT) and Target (TGT).
Cash is stable, debt is being reduced and shares repurchased. Shorts are going to get squeezed here. Ackman, Lampert and Berkowitz will not dump shares and they hold roughly 65% to 70% of the total and Lampert keeps reducing share count through the buybacks. If you do the math, there are plenty of shorts out there “swimming naked” that will be fighting for shares when they have to cover.
That, will cause a surge in shares, a big one….
Full SEC Filing
Disclosure (“none” means no position):
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I think people are missing just how good a job Borders (BGP) CEO George Jones is doing there…
Notes from the earnings call:
– In the first half of this year, cash flow from continuing operations improved by $195.7 million compared to a year ago
– SG&A dollar expenses from continuing operations were $16.7 million lower than last year and are on track with stated plan to reduce annual expenses by $120 million.
– Approximately half of the $120 million in savings is related to corporate office expense reductions and the other half is reductions in store and distribution expenses. Most of the actions necessary to realize these savings have been taken.
– They are on track to realize approximately half of the expense savings, or about $60 million in 2008 and expect to be operating at a level to realize $120 million in annualized expense savings at the beginning of fiscal 2009.
– More than 28 million Borders rewards loyalty program members. This program continues to attract new members at a rapid pace. Averaging over 131,000 new members a week. Borders.com will be rolled out to stores later this year.
– Inventory reduction in music inventory, which declined over 30% from last year. They have also reduced floor space dedicated to music in all stores by about a third, on average. Music now occupies approximately 7% of total store floor space. The space previously occupied by music was reallocated to growth categories, such as children’s and bargain books.
– More space in stores due to inventory reduction allows a focus on driving profitable sales by better using that space to expand growing categories, such as children’s and bargain, as well as to face out more books and make some merchandising improvements.
– These strategies work in new concept stores and the concept stores, they are really pleased. They are performing very well on the whole and BGP will be applying them in all of our stores.
From Q&A
Regarding Pershing Square and Bill Ackman
Matthew Fassler – Goldman Sachs
“And just a really basic question on the Pershing warrants, the benefit to you is a result of what specifically be”
Edward W. Wilhelm
“Well, the warrants again have a strike price of $7, the stock being under $7 results in a downward adjustment, an income item. If things were to go the other way, it would be a — obviously an expense item if things were to, if the stock were to be over $7. And again, this is all non-cash too.”
Matthew Fassler – Goldman Sachs
“And as it moves closer to or further away from $7, you take — you book something there?”
Edward W. Wilhelm
“That’s right. And again, non-cash item.”
Cost Cutting:
George L. Jones
“One thing to note in this expense initiative, this is something we started last year looking at and had some outside help, even beginning last year, looking at the fact that we really needed lower overhead and we thought there was an opportunity to [do there]. Obviously we stepped this up quite a bit in the first of the year as we saw sales softening and what was happening with the economy and brought in some additional outside help, which really helped us focus on it at the beginning of the year. And as we put this in in second quarter, this was something that we did quite surgically with a lot of focus and literally, it was a process that was not just concentrated on let’s eliminate some jobs or do this, et cetera, which all that happened but we really literally turned over every possible stone within the company in every area and that’s the reason we are so confident that we can deliver more than the $120 million in expense reductions. And we’re still finding things.”
More on Pershing and PaperChase:
David Weiner – Deutsche Bank
“Okay, and then just one final separate question and I’ll pass it on — if you can just remind me what the implications are of not selling the Paperchase business within your agreement with Pershing? Are there kind of certain levers that happen, if I remember the Paperchase business doesn’t get sold to an outside party by the fourth quarter?”
Edward W. Wilhelm
“No, there are no implications of that, and just to be clear, the put that we have available that remains for our ability to put the Paperchase business back to Pershing Square remains in effect. We haven’t exercise the put and we obviously haven’t sold the Paperchase business either. And I would just say that as we sit here today, we’ve got plenty of available capacity to get through the peak debt season for this year and we can sit here even without the sale of Paperchase or the exercising of that put and we can say that with a high degree of confidence because that peak debt occurs early next month. So we are sitting in a very comfortable position, again even without the sale of Paperchase as we look out through the remainder of this year and again, there are no implications of not exercising that put.”
George L. Jones
“The Pershing put was really a back-stop for us to give people confidence that we had the wherewithal going forward, et cetera. That’s why it was done. It was never necessarily our intent that we would exercise it but it was there if we needed it. It was a safety net, so to speak.
Since that happened, I mean, we’ve dramatically improved the financial strength of this company and the balance sheet, as evidenced by the debt and our improvement in cash flow and everything that we have reported here. We feel really, really good about that and the expense reductions, everything we’ve got. So we’re just in a much, much stronger position financially than we were.”
More on the $120 million costs saving:
Aaron Stein – J.P. Morgan
“Okay, and then of the $120 million of annual savings, can you break out how much of that you think comes from either store closures or business spin-outs, so on and so forth versus existing operational savings?”
Edward W. Wilhelm
“None. It’s all from existing operational savings.”
What to think? This is even better than yesterday’s initial news. Why? There
We another $60 million in savings minimum this year, Borders.com results, $7 million in sales were really only after 2 to 3 weeks of operations in Q2. The new concept stores, managements reaction to them get better each quarter. Debt reduction continues.
Let’s look at the second half of the year. Last year the company lost $97 million in Q’s 3 and 4. Some real rough math gives us the above mentioned $60m in cost saving, $12m in debt interest savings, Borders.com ought to contribute $35m in sales at a real conservative minimum giving about a $8.4 m profit (using 24% gross margin). Should Paperchase be sold to Pershing, that save another $10 million in cash flow and reduces debt even further, bettering results.
I think those folks that think Borders won’t turn a profit for the second half of the year are going to be disappointed. Now, should the economy collapse, clearly we are in a different situation. But, if the worst is over and the consumer mood changes or even just stays the same, things could get a whole lot better real fast.
The cost cuts that have been made in areas that will not really involve cost increases when sales return (leases, utilities, marketing, labor, corporate expenses). The short of that is increasing dollars falling to the bottom line rather than being absorbed by expenses.
Disclosure (“none” means no position):Long BGP
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So, yesterday Doug Kass defended short sellers and today Martin Whitman of the Third Avenue Value Fund (TAVFX), take them apart. Now, I do not have decades of investing experience but I do not remember a time where there was such clear and intense battle lines drawn.
MBIA (MBI) & Ambac (ABK) are at the epicenter of this battle. Whitman writes:
“In management’s letter last quarter, it was observed that short sellers and bear raiders have never been more powerful. TAVF operates differently from short sellers. At Third Avenue, Fund Management tries to avoid investment risk, i.e., something going wrong with the business or the securities issued by that business. TAVF pretty much ignores market risk, i.e., fluctuations in market prices. Short sellers, on the other hand, have to be acutely conscious of market risk. If the security they are short rises in price, short sellers have to come up with more collateral. If short sellers buy puts, and the security price does not go down, it is “sudden death” at the date of expiration of the put options.
As a consequence of the need to be so sensitive to market prices, bear raiders seem to tend very much to engage in nefarious activities, whether legal or not. First, the shorts condition markets any way they can, whether by spreading rumors or issuing
analyses where the consequences for long security holders are deemed to be draconian if the buyer continues to hold. Sometimes the true intentions of the short sellers are masked. For example, William Ackman appears to be disingenuous when he writes and
talks about saving MBIA’s policyholders. Why does he care about policyholders? Ackman’s objective is to drive down the market price of MBIA securities. The bear raiders have enjoyed great success. Bear Stearns (BSC) lost its creditworthiness when customers and counterparties reacted to rumors and stopped doing transactions with Bear.Lehman Brothers Holdings has been hurt by the same kind of rumor mongering. TAVF no longer will invest knowingly in the common stocks of companies that need relatively
continuous access to capital markets; or where customers and counterparties can flee without appreciable costs. Fund management does not believe that Ambac and MBIA, both of which are the objects of bear raiders, can ever have a Bear Stearns type of experience. The great weight of probabilities seems to be that both companies enjoy such financial strength that they can survive almost any stress. For TAVF, the activities of the short sellers have meant that securities became available for purchase at far, far lower prices than would otherwise be the case. The most nefarious aspect of the short sellers revolves around their concerted efforts to destroy, or at least diminish, the companies’ existence as going concerns. In the cases of Ambac and MBIA, the short sellers have been bringing as much pressure as they can on rating agencies, insurance regulators and securities regulators to downgrade Ambac and MBIA, to demonstrate insolvency and to prevent either company from accessing capital markets.It should be noted that until the recent SEC inquiries, short sellers were pretty much free to say, or write, whatever they like. There is no apparent downside for being a “loose cannon”. Managements and insiders, however, are quite restricted in what they can say or write because of securities laws, in general, and
Sarbanes-Oxley attestations and auditor limits, in particular. In informing uninformed investors, there does not seem to exist a level playing field.I will write to you again when the Annual Report for the period to end October 31, 2008 is published.
Sincerely yours,
Martin J. Whitman
Chairman of the Board”
Read Full Letter Here
Disclosure (“none” means no position):Long TAVFX, none
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The SEC is ridiculous. When it comes to financials like Citi (C), Fannie (FNM), Freddie (FRE), Bear Sterns (BSC), Merrill Lynch (MER), Lehman (LEH) and Morgan Stanley (MS), the only people telling the truth are the shorts like Ackman, Einhorn, Loeb and Tilson. Why isn’t the management being investigated? Virtually every public statement they have made had in the end has been erroneous and the shorts, who have been right, are being called “rumor mongers”. If it is true, is it a rumor?
Is this like Bill Clinton and “it depends on what your definition of “is” is”?
Anyway, read what Loeb has to say about it in his Q2 letter dated 7/25.
During the second quarter of 2008, the market witnessed a significant increase in
regulatory activity by the SEC and other government entities. Over the past several
weeks, the SEC has served subpoenas on over 50 different hedge funds, seeking
information relating to short sales in Bear Stearns and Lehman Brothers, and the
dissemination of rumors about those companies in the market.This investigation comes at the same time that the SEC has implemented several other
measures designed to address short-selling. On July 15, 2008, the SEC instituted a 30-day emergency measure aiming to make the short-selling of certain financial institutions more difficult by requiring all sellers to borrow or enter into a bona fide agreement with the share lender to borrow the securities prior to the short sale.The SEC also recently announced that it is concerned about the deliberate spreading of false rumors by short-sellers – known as rumor mongering – which some have claimed led to the Bear Stearns implosion. To this end, the SEC announced that its regulators would immediately begin conducting examinations of broker-dealers and investment advisers to determine whether they have sufficient procedures in place to protect against the dissemination of false rumors.
As you may recall, the SEC conducted an audit of Third Point last year after we
registered as an investment advisor. During the course of the audit, the examination staff noted that we regularly communicate with portfolio managers at other hedge funds about investment and trading ideas. The SEC later informed us that it had commenced a formal investigation of Third Point primarily relating to these types of communications. Such conversations permit us to test our hypotheses and refine our thinking and, as a result, we believe that participating in give-and-take with other managers is in the best interest of our investors. Our outside counsel has examined this matter thoroughly and assured us that our position is consistent with the securities laws and that we have not violated any law in connection with these communications.Regulatory matters are certainly playing a significant role in the life of hedge funds as the obligations and demands of the current regulatory environment continue to increase. However, rest assured that we have a strong operational and legal team to assist me in these endeavors, and as a result, all of us on the investment team at Third Point remain completely focused on our investment activities and maximizing returns for our investors.
Is the fact that the company’s are able to place the “safe harbor” disclaimers after their filings that eliminate them from investigation? Does that magically make whatever they say, when it turns out to be spectacularly wrong a “mulligan”?
When it was required of company’s to place the “investment risks” and safe harbor in the filings, is it now the unintended consequence of those actions the fact that management is now able to paint as rosy picture as humanly possible on the business and those statements and the presumptions they give investors are only good for the day they are filed? Have we, in a effort to get “more disclosure” from them, in essence, indemnified management from any legal recourse for their public statements?
Yet, short sellers are not protected from making the same statements, only in an opposing thesis, even if that thesis is ultimately born out as accurate? Are we only protecting optimism, even if it is disingenuous, for lack of a better word while punishing honest pessimism?
Now, it is true that cases have not been brought by the SEC (yet) but, let’s be honest, one would be painfully naive to think that SEC investigations of 50 hedge funds would not have a chilling effect on those who might be inclined to short sell. If shorting Lehman is going to bring and SEC investigation and additional legal costs, is it worth it for the small fund? Probably not.
Is the SEC trying to shut down communications between hedge funds? What is a rumor and what is an opinion? Are they issuing subpoena’s to execs at Citi, Merrill and Lehman asking for all their internal communication and communications they have had with each other so we cab ascertain when they new they would need additional capital and if this contradicts public statements?
Personally, I do not have the stomach to be a short, not in my nature. If you can do it, go for it. The SEC ought to require shorts to disclose their positions, just like longs do. But, they ought not single them out for dissection because we do not like what they say.
Don’t kill the messenger because you do not like the news, go after the guys who created the bad news the messenger delivers…
Disclosure (“none” means no position):Long C, none
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Do you think Lehman Brothers (LEH) will ever admit David Einhorns know more about their business than they do? Me either…….
The WSJ is reporting that Lehman will announce:
“a loss of $1.8 billion or more, instead of the modest profit they previously expected. If the dour projections come true, Lehman’s losses since the start of March would total at least $4.5 billion — or more than the firm churned out in profit during fiscal 2007.”
Now this means Lehman will be forced to:
1- Sell valuable real estate business
2- Sell Neuberger Berman
3- Dumped CDO’s for pennies in a Merrill Lynch (MER) like firesale
4- Raise more equity through additional common share or debt issuance
5- Some combination or all of the above
Most of this began coming to a head in June when Lehman began attacking David Einhorn, who had shorted the stock and had appeared on CNBC stating his thesis for doing so.
Only a day or so later, Lehman began buying back shares to reassure investors of the confidence in the stock.
A week later, Einhorn gave this interview after essentially everything he said came to fruition. It is important to note he said in June more losses were to come.
Three days later, CFO Erin Callan was done
Why, why is anyone investigating or threatening to investigate Einhorn or Ackman when nothing, nothing that has come out of a bankers mouth in the last year has been born out to be remotely accurate.
Shouldn’t they be the ones in front of investigators????
Is there anyone left at Lehman other than CEO Dick Fuld left to take the fall…finally?
Disclosure (“none” means no position):none
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Bloomberg article on Bill Ackman, founder of Pershing Square Capital Management. Discusses some of his investments, including Sears (SHLD) and Target (TGT).
Article points out that Sear and Target,
“.. reached record levels of short interest as a percentage of publicly traded shares in the last month. Sears led the Standard & Poor’s 500 Index with 55.9 percent as of Aug. 12, according to Bloomberg data. Target’s reached 7 percent.”
Memorable quotes by Whitney Tilson founder of T2 Partners:
“It’s easy to say when a stock has declined after you buy it that you’ve made a mistake, but there’s a big difference between being early and being wrong”
“The fact that there are so many naysayers out there,” he said, “just means that vindication will be all the sweeter”.
Disclosure (“none” means no position): Long SHLD
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Borders (BGP) website has not received very much attention in the MSM and think that will change very soon.
Compete.com has a post over at Seeking Alpha that illustrates it in detail but I think just two of their graphs (below) show the story.
Let’s look at Borders.com traffic since the launch:
From an average of 250,000 visits a day to just under 800,000. Now, visits mean nothing if they are not converted to sales. Let’s look:
Borders only went live in June so the early results are nothing short of spectacular. Borders has said the site will be profitable this year and one has to really wonder the magnitude of that profit.
To have the site traffic and conversions surging both in a anemic economy and during the summer season should excite shareholders (it does me at least). Can we think maybe that the reason Barnes & Noble (BKS) decided not to bid for the company was that the price being talked about was in fact too high for them? Could it be that the price was high because management (and Bill Ackman at Pershing) are seeing the early results from the web traffic and are ratcheting up their expectations for the company’s performance and hence any offer they want from a prospective buyer??
This would explain the “financing” problem Barnes & Noble allegedly used for backing off. At fist glance it did not make sense, but maybe, just maybe Borders performance this quarter has pushed the price higher than most expect..
We’ll find out next week…….
Disclosure (“none” means no position):Long BGP
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Bill Ackman doubled down on a few bets this quarter
Pershing Square and Bill Ackman made some changes:
Increased Wendy’s (WEN) from 7 million to 13 million shares
Increase Puts on MBIA (MBI) from 65k shares to 870k shares (more short)
Initiated a stake in Dr. Pepper (DPS) now holding 21 million shares
Sears Holdings (SHLD), Borders (BGP) and Barnes & Noble (BKS) stakes remained unchanged.
Disclosure (“none” means no position):None
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Pershing Square and Bill Ackman just filed a 13D/A in Target (TGT)
Applicable Portion:
This Amendment No. 3 to Schedule 13D (this “Amendment No. 3”) amends and supplements the statement on Schedule 13D, filed on July 16, 2007 (the “Original Schedule 13D”), as amended by Amendment No. 1 (“Amendment No. 1”), filed on December 24, 2007, and Amendment No. 2, filed on January 16, 2008 (“Amendment No. 2”, and the Original Schedule 13D as amended and supplemented by Amendment No. 1 and Amendment No. 2, the “Schedule 13D”), by (i) Pershing Square Capital Management, L.P., a Delaware limited partnership (“Pershing Square”), (ii) PS Management GP, LLC, a Delaware limited liability company, (iii) Pershing Square GP, LLC, a Delaware limited liability company, (iv) Pershing Square Holdings GP, LLC, a Delaware limited liability company, and (v) William A. Ackman, a citizen of the United States of America (collectively, the “Reporting Persons”), relating to the common stock, par value $0.0833 per share (the “Common Stock”), of Target Corporation, a Minnesota corporation (the “Issuer”). Unless otherwise defined herein, terms defined in the Original Schedule 13D shall have such defined meanings in this Amendment No. 3. The principal executive offices of the Issuer are located at: 1000 Nicollet Mall, Minneapolis, Minnesota 55403.
As of August 14, 2008, as reflected in this Amendment No. 3, the Reporting Persons are reporting beneficial ownership on an aggregate basis of 73,942,108 shares of Common Stock (approximately 9.50% of the outstanding shares of Common Stock), which include shares subject to certain stock-settled total return equity swaps and certain stock-settled American-style call options. The Reporting Persons also have economic exposure to approximately 26,704,413 notional shares of Common Stock under certain cash settled call options (“Options”), bringing their total economic exposure to 100,646,521 shares of Common Stock (approximately 12.93% of the outstanding shares of Common Stock).
Disclosure (“none” means no position):None
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Thank-you, MBIA v Ackman, iPhone, Happy Birthday
– Thank you for the mention.
– More thoughts on the subject
– Uh… not so great
– A Happy Birthday to George over at Fat Pitch
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Week one, disclose position in Longs Drug Stores (LDG). Next week, make 87% on investment when CVS (CVS) buys you out.
Reuters Reports:
“CVS Caremark will pay $71.50 per share for Longs to acquire some 521 Longs stores in California, Nevada, Arizona and Hawaii, as well as its Rx America subsidiary, a prescription benefits management services company.
The deal was expected to crimp earnings per share at CVS Caremark in its first year, but add to earnings beginning in 2010, the companies said.
CVS Caremark is expected to gain cost savings of approximately $100 million in 2009 and approximately $140 million to $150 million in 2010 from purchasing savings and lower selling, general and administrative costs.
“This transaction provides tremendous benefits to CVS Caremark by accelerating our expansion in very attractive drugstore markets and strengthening our geographic reach,” the company’s chairman and chief executive, Thomas Ryan, said in a statement.”
Ackman has an economic interest in 23% of the company. Quick math says he nets $667 million and a rough estimate profit of $580 million. Not a bad week at all…
Disclosure (“none” means no position):None
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Whitney Tilson’s T2 Partners has files in quarterly 13F. There are some interesting moves.
T2:
Increased ownership in Sears Holdings (SHLD) to over 50,000 shares
Purchased 11,000 shares of Starbucks (SBUX) as a new holding
Increased his stake in Borders (BGP) from 900K to 1.3 million shares
Added a new position (in addition to 797 existing calls) of 45,000 shares of American Express (AXP)
Decreased his Berkshire Hathaway (BRK.B) holdings by 260 class “B” shares
Increased his Target (TGT) stake from 104k to 185k shares of common and now holds 200 less calls
Increased his Whole Foods (WFMI) stake from 7k to 25k shares.
Tilson is the second value manager, Fairholme’s (FAIRX)following Bruce Berkowitz’ disclosure last week to increase their stake in Sears Holdings. The American Express stake was bought at probably fire sales prices that occurred during the quarter and will probably be a “genius” purchase down the road.
What is of note is the Borders increase heading into the fall as Ackman’s options for the warrants he has comes due.
What will be a great interest now is whether or not Ackman completes the Sears trifecta when he reports his holdings.
Full August Filing
Full May filing
Disclosure (“none” means no position):Long SHLD, BGP, none
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Bill Ackman has filed an amended 13D this morning for Pershing’s investment in Longs Drug Stores (LDG)
Item 1. Security and Issuer
This Amendment No. 2 (this “Amendment No. 2”) amends and supplements the statement on Schedule 13D, as amended to date (the “Schedule 13D”), by (i) Pershing Square Capital Management, L.P., a Delaware limited partnership (“Pershing Square”), (ii) PS Management GP, LLC, a Delaware limited liability company (“PS Management”), (iii) Pershing Square GP, LLC, a Delaware limited liability company (“Pershing Square GP”), and (iv) William A. Ackman, a citizen of the United States of America (collectively, the “Reporting Persons”), relating to the common stock (the “Common Stock”), of Longs Drug Stores Corporation, a Maryland corporation (the “Issuer”). Unless otherwise defined herein, terms defined in the Schedule 13D shall have such defined meanings in this Amendment No. 2.
As of August 11, 2008, as reflected in this Amendment No. 2, the Reporting Persons are reporting beneficial ownership on an aggregate basis of 3,137,659 shares of Common Stock (approximately 8.8% of the outstanding shares of Common Stock). The Reporting Persons also have economic exposure to approximately 5,296,896 notional shares of Common Stock under certain cash-settled total return swaps (“Swaps”), bringing their total economic exposure to 8,434,555 shares of Common Stock (approximately 23.6% of the outstanding shares of Common Stock).
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer
Item 6 is hereby supplemented as follows:
In addition to (a) the Common Stock beneficially held by the Reporting Persons and (b) the Swaps previously reported by the Reporting Persons on the Schedule 13D, on August 8, 2008 and August 11, 2008, certain of the Reporting Persons entered into cash-settled total return swap agreements for Pershing Square L.P. (the “PSLP Swaps”) and Pershing Square International, Ltd. (the “PSIL Swaps,” and together with the PSLP Swaps, the “Amendment No. 2 Swaps”). The Amendment No. 2 Swaps constitute economic exposure to approximately 756,000 notional shares of Common Stock, have reference prices ranging from $53.55 to $54.69 and expire on dates ranging from November 30, 2009 through August 31, 2010. Under the terms of the Amendment No. 2 Swaps, (i) the applicable Pershing Square Fund will be obligated to pay to the counterparty any negative price performance of the notional number of shares of Common Stock subject to the applicable Amendment No. 2 Swap as of the expiration date of such Amendment No. 2 Swap, plus interest, and (ii) the counterparty will be obligated to pay to the applicable Pershing Square Fund any positive price performance of the notional number of shares of Common Stock subject to the applicable Amendment No. 2 Swap as of the expiration date of the Swap.
With regard to the PSIL Swaps, Pershing Square International, Ltd. will be entitled to cash payments during the term of the PSIL Swap in lieu of any dividends received by the counterparty on such notional shares of Common Stock. With regard to the PSLP Swaps, at maturity Pershing Square, L.P. will receive a cash payment from the counterparty equal to any dividends received by the counterparty on such notional shares of Common Stock during the term of the PSLP Swaps. All balances will be cash settled at the expiration date of the Amendment No. 2 Swaps. Including the Swaps disclosed on the Schedule 13D and the Amendment No. 2 Swaps, the Pershing Square Funds’ counterparties for their Swaps include entities related to BNP Paribas, Citibank, Credit Suisse and UBS.
The contracts relating to the Amendment No. 2 Swaps do not give the Reporting Persons direct or indirect voting, investment or dispositive control over any securities of the Issuer and do not require the counterparty thereto to acquire, hold, vote or dispose of any securities of the Issuer. Accordingly, the Reporting Persons disclaim any beneficial ownership in securities that may be referenced in such contracts relating to the Amendment No. 2 Swaps or that may be held from time to time by any counterparty to the contracts.
Full SEC Filing
Disclosure (“none” means no position):None
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