This is really interesting…
Disclosure: None in Target (TGT), AMBAC (ABK) or MBIA (MBI)
Todd Sullivan makes the case that Sears does not need to make the “big splash”
Tag: ackman
Barnes and Noble (BKS) release holiday results today and based on what they reports, Bill Ackman must be getting nervous about his 10% stake in Borders (BGP)
Based on holiday sales results and January sales trends to date, Barnes and Nobel is reducing its earnings per share guidance to $1.57 to $1.76 and $1.81 to $1.99 for the fourth quarter and full year, respectively. Previous EPS guidance was $1.67 to $1.86 and $1.91 to $2.09, for the fourth quarter and the full-year, respectively. Although the company is reducing guidance based on fourth quarter performance and current trends, full-year guidance remains higher than the guidance provided at the beginning of the fiscal year due to the favorable results achieved during the first three quarters.
The thought process out there was that with all the lead paint recalls, the book sellers would have had a great holiday season as parents sought alternatives to the poison toys out there. It would seem that this did not come to fruition.
If the larger and better run operation is reducing guidance, one would be surprised in the “second fiddle” operator did not follow suit.
All this just begs questions from me. I have been trying in vain to figure what Ackman sees in Borders to begin with. That being said, in the last 5 days he has taken out “total return swaps” in Borders over 2 million shares. What does he know?
Much has been said about Ackman being a “slick salesman” and that may be true. It is also true that he a a very good investor and no dummy. There has to be an upside I just cannot see.
Anyone?
Disclosure: None
Ackman is no dummy I will admit but can anyone tell me what he sees in Borders (BGP)?
In an SEC filing late Tuesday Ackman’s Pershing Square followed last week’s total return swap transaction in Borders shares with another.
The Details:
. Pershing Square International, Ltd. (“PSIL”), entered into a cash-settled total return swap with a broker-dealer counterparty for a commission equal to $0.03 per notional share subject to such swap. The swap was entered into on January 8, 2008 and expires on August 5, 2009. Under the terms of the swap (i) PSIL is obligated to pay to the counterparty any negative price performance under $9.7239 for each of the 1,770,100 notional BGP common shares subject to the swap (the “Swap Reference Shares”), plus interest, and (ii) the counterparty is obligated to pay to PSIL any positive price performance over $9.7239 for each of the Swap Reference Shares, plus any dividends paid during the life of the swap.
I just don’t get it. Ideas anyone?
Disclosure: None
Pershing’s Bill Ackman entered into “total return swap” agreements 12/31 and 1/2 representing 429,000 shares in Borders Group (BGP)
Swap Details:
The reporting person, for the account of Pershing Square International, Ltd. (“PSIL”), entered into two separate cash-settled total return swaps with a broker-dealer counterparty for a commission equal to $0.02 per notional share subject to such swaps.
1.The first swap (the “First Swap”) was entered into on December 31, 2007 and expires on February 4, 2009. Under the terms of the First Swap (i) PSIL is obligated to pay to the counterparty any negative price performance under $10.7415 for each of the 312,500 notional BGP common shares subject to the swap (the “First Swap Reference Shares”), plus interest, and (ii) the counterparty is obligated to pay to PSIL any positive price performance over $10.7415 for each of the First Swap Reference Shares, plus any dividends paid during the life of the swap.
2. The second swap (the “Second Swap”), also for the account of PSIL, was entered into on January 2, 2008 and expires on February 4, 2009. Under the terms of the Second Swap (i) PSIL is obligated to pay to the counterparty any negative price performance under $10.5534 for each of the 116,800 notional BGP common shares subject to the swap (the “Second Swap Reference Shares,” together with the First Swap Reference Shares, the “Reference Shares”), plus interest, and (ii) the counterparty is obligated to pay to PSIL any positive price performance over $10.5534 for each of the Second Swap Reference Shares, plus any dividends paid during the life of the swap. In the case of both the First Swap and Second Swap, all balances will be cash settled and there will be no transfer to or from PSIL of voting or dispositive power over the Reference Shares.
This is a fascinating trade for Ackman. Readers may remember Sears Holdings (SHLD) Eddie Lampert in 2006 and early 2007 having similar transactions in an undisclosed security.
Disclosure: No position
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Ackman’sTarget Stake Down 43%
Pershing Square’s Bill Ackman notified investors their stake in Target (TGT) is now down 43% to date and was down 36% in December alone
The interesting thing is that Ackman intimated he has no plans to sell any share. He own mosts of his stake through long term options, most of which expire in 2009 and 2010. According to Ackman he feels the stock could be “$120 in three years” and that the “value of its real estate alone is worth its current market cap”…..
Disclosure: No stake in Target
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Whitman on Ackman… Video
Here is the video from this mornings comments from Martin Whitman on Bill Ackman
Here is the video
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Marty Whitman Slams Bill Ackman
Whitman on CNBC just called Bill Ackman a “slick salesman who does not know much about insurance and certainly doesn’t know much about restructuring secure debt”…WOW
I’ll look for the video later…
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Monday’s Links
WSJ vs NYT, WSJ hires, Media, Ackman
– Murdoch has spent the past ten years watching the NY Times mock his Fox network. Now that he has the Wall St. Journal, I would bet a testicle he crushes them…..
– Step one? Bring in the dogs…
– It would seem it took two years but the media now finally understands the lead paint issue.
– Of all these going public, this may just the the ONE I would take a serious look st.
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November’s Most Read Posts
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Ackman Increases Stake in Borders: Why?
I am trying to understand what Bill Ackman sees in Borders (BGP)
According to a filing with the SEC, Bill Ackman’s Pershing Square Capital Management disclosed an increased 17.1% stake in bookseller Borders Group, up from 12%. Last week management said Q4 earnings, excluding restructuring charges, will exceed last year’s earnings from continuing operations of around $1.48 per share. Now that improvement is only about $1 million dollars, it is not like they knocked it out of the park here. They attributed the difference to both the fear of lead in toys and a strong best-seller lineup.
I noted this “no toy” trend last week in a “Black Friday” post that I observed very few toys being taken to the register at several locations.
Now, in an Oct. 9 SEC filing, Ackman’s Pershing Square said it did not believe its
“activities would effect a change of control” at the book seller. Simply put, Ackman is playing this as a ValuePlay story, not as an activist investor pushing for change at the top.
What to see in Borders? Shares trade at 1/2 their 52 week high and sit at $12 a each and CEO George Jones has ponied up $1.2 million for 100,000 shares in the past two months. After that? I just cannot find much. They sold off their UK operations, big box discounters like Wal-Mart (WMT) and Target (TGT) are crushing margins and online retailers like Amazon (AMZN) and Ebay (EBAY) are taking traffic the thought of a meaningful online business away from them. The only reason I can find to buy shares is in the hope they merge with Barnes and Nobel (BKS) who is actually making money. But, why would BKS want it? Borders does have almost no debt and about $1.10 a share in cash. Taking it over would not hinder the balance sheet at Barnes and Nobel.
It would enable them to sell off duplicate locations and effectively eliminate foot traffic competition. The FTC might have something to say about it but they so far have been unable to stop anyone who wants to merge so it is doubtful they would be able to actually do anything even if they did object.
Now, there must be something else there or Ackman knows something we don’t. The merger of the two have been rumored for about a year now and with both CEO’s buying shares in the company, that assures it is far off. The SEC would be all over both companies were a merger announced anytime soon after insiders were seen buying large amounts of shares on the open market.
Borders is a non-factor in the online game so that cannot be it. FY 2008 ending in Jan. will mark the second consecutive year the retailer has lost money and FY 2009 does not look all that much brighter. Sales for the past three years have been essentially stagnant. Personally, I love to read but book are the last thing I want to go to the store for. My first stop is online and borders.com does not even come to mind. This simply means that the economics of the company do not have a huge impetus to change anytime soon.
The environment they operate in is getting tougher, not easier and that does not bode well for a “turnaround” story. More digging is in order to find out what Ackman is thinking.
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Ackman Raises Target Stake
Here are the week’s top stories at Value Investing News. It is a Lampert /Buffett buffet.
2. Buying American Eagle Outfitters
(via www.controlledgreed.com)
Excerpt: “The company has a market cap of approximately $4.76 billion with nearly 215 million shares outstanding. The dividend yield is less than 2%. The balance sheet is strong, and there’s nearly $3 a share of cash.”
I agree that AEO looks cheap I own Jan 2010 Calls.
3. Wow
(via mikesnewsletterinvesting.blogspot.com)
I review my portoflio and briefly look over some new ideas
4. Picks from a Patient Investor – David Katz, Matrix Advisors Value
(via www.morningstar.com)
Justin Fuller of Morningstar meets with the CIO of the Matrix Advisors Value Fund, David Katz, to discuss some of his stock picks.
6. First Eagle Funds Update Call featuring Jean-Marie Eveillard (Transcript)
(via www.firsteaglefunds.com)
First Eagle Funds Update Call featuring Jean-Marie Eveillard.
7. The Berkshire Hathaway Portfolio
(via news.morningstar.com)
Justin Fuller, equity strategist and manager of Morningstar’s Ultimate Stock-Picker’s Portfolio, checks in with Berkshire’s holdings for the Ultimate Stock-Picker’s Portfolio.
8. Bill Ackman’s Presentation at 2007 Ira Sohn Conf. – Who’s Holding the Bag?
(via www.valueinvestingcongress.com)
Bill Ackman’s Presentation at 2007 Ira Sohn Investing Conference.
9. A Buffett investment that wasn’t
(via money.cnn.com)
Stories about the Berkshire billionaire buying into CarMax were not quite what they seemed, reports Fortune’s Alex Taylor III.
10. Freddie Mac new casualty of US mortgage crisis
(via business.timesonline.co.uk)
Shares in Freddie Mac lost almost a quarter of their value today after the mammoth American mortgage giant plunged into a $2 billion quarterly loss and hired Lehman Brothers and Goldman Sachs to explore “very near term” opportunities to raise cash.
Why does Wall St. want Sears Holdings (SHLD) Eddie Lampert to buy more stores, doesn’t he have enough already? Aren’t they always saying that mergers never work? If that is true, why are shareholders wanting a big one and why are they disappointed he is trying to buy a small specialty retailer.
Two news item shed light into what Lampert is doing and no it does not include the purchase of Circuit City (CC), Home Depot (HD) or even the oft speculated about Macy’s (M) .
First: The New Retail Concept In Georgia (this location was a former Kmart).
“Sears will come to life by offering customers a “store-of-shops,” and a fresh design layout with different flooring, fixtures, and displays. Marquee brand names now found in the new Sears include Sony, Hanes, Workwear – by Craftsman, Carhartt, Timberland and Diehard apparel, Levi’s, and Nordic Track. The store will also feature expanded Home Electronics and Home Appliance showrooms, organized around favorite manufacturers, that will also help customers choose the right look, feel and function with other brands Sears carries.
A newly remodeled hardware department will feature innovative and interactive Garage Organization, Mechanics and Carpentry shops to help customers find the right item quickly and efficiently.
Five central internet workstations located throughout the sales floor will provide free high-speed Web access to enable both the customers and associates to quickly access the internet, verify prices, shop online and contact store personnel if help is needed.
The store will also carry a wide range of convenience items previously available at the former Kmart location including full pharmacy services, health and beauty, cosmetics and greeting cards.
This new format will help customers create the look they want and find the gifts they need all in one convenient location. Shoppers will find the quality brands they have come to know and love like Diehard, Craftsman, Ty Pennington, and Kenmore plus extended assortments of national brands from Nordic Track, Schwinn, Reebok and more. Customers can also shop for great fashions with the first 23,000 sq. foot mega Lands’ End shop that brings the legendary brand to life with items for women, men, kids, baby and home. Now families can touch and feel the quality and see the details of Lands’ End products. A special monogramming service is also available to easily personalize just about any Lands’ End item that will take a stitch. There’s even free shipping on any catalog or landsend.com order placed from the store.”
Another Brand:
Sears Holdings take a 13% stake in Restoration Hardware and is looking at acquiring entire operation.
Now, if you are going to build a nationwide operation of these stores, what do you need? BRANDS. Lampert already has about 3,5000 locations is both the US and Canada. Why would he need to buy another retailer and adopt more locations?
Think about it. What is the most expensive thing a growing retailer experiences? Building new locations. Just ask Target, they are begging Lampert to sell them hundreds of his prime locations because it is cheaper than building them. More space is not what Lampert needs.
What is Lampert going to do? Smaller acquisition of brands that he can then plug into the new concept. Worse case scenario with the Restoration Hardware deal if it goes through, they close up its “back of the house” operations and sell the products through the Land’s End catalog and stores and it is still a winner for him. One good thing about a successful mail order business, no matter who owns it, it makes money. Land’s End, who has years or success here can only make it better.
So, if we go with the Brands thesis, what do we look for? Women. Sears has men with Craftsmen and Kenmore. How about going after Victoria’s Secret or Bath & Body
Works from the struggling Limited Brands (LTD). Either would bring women into Sears for their products and traffic is what Lampert needs and has been shedding assets. Or, buy the whole company currently valued at $6.5 billion and then sell off the unwanted pieces to help pay for it. Maybe for just over a billion dollars he could go for Carter’s (CTI) and create a top notch children’s “store in a store”. Any mother knows Carter’s makes some of the best children’s clothing out there.
Either way, next week’s earnings announcement will be a fun one.
Target (TGT) announced earnings this morning and while the EPS numbers were not good, (below estimates), revenues were good (up 9.3%). This is good news for folks like Wal-Mart (WMT) because it means people are still shopping at discount retailers. since nobody controls costs like Wal-Mart does, investor ought to be comforted that folks are still spending.
Here is more bad news. If we back out the credit card operations that Bill Ackman has them selling, EBIT in 2007 was $801 million vs $823 million in 2006. That equates to a 3% drop this year. Now, one must also understand earnings without the credit card results would be 17% lower and that this segment is growing at 17%. Retail results without the credit operation will be far worse than they are now.
Regarding the credit card sale? Maybe it is not a sure thing. “At this point in the review, it is clear that if a transaction occurs, it would involve sharing a meaningful portion of our future pre-tax credit card contribution with a new partner,” said Doug Scovanner, chief financial officer. “As a result, we are continuing to evaluate whether the benefits of a potential transaction outweigh its expected dilutive impact on earnings per share. Regardless of the outcome, we remain committed to maintaining our core financial services operation and growing and developing our best-in-class Target Financial Services team.”
Keep it….
Good News?
“Target also announced today that its board has authorized a new $10 billion share repurchase program that replaces the prior authorization. At recent share price levels, this authorization represents more than 20 percent of outstanding shares. The program is expected to be completed within three years, with the pace of repurchase activity being dependent on many factors, including: the strength of our business operations, the maintenance of an appropriate credit profile, capital reinvestment opportunities, access to adequate liquidity and debt and equity capital market conditions. Based on current conditions and outlook, a significant portion of the program is expected to be completed by the end of 2008. This new authorization is not contingent on any specific outcome from the review of the ownership of Target’s credit card receivables.”
Now that is how you announce a buyback. Target produces about 10% of its market cap a year in cash flow from operations so it can easily finish the repurchase plan without mortgaging the future of the company like Home Depot (HD) is trying to do.
Target is being very conservative with both it cash and the credit card sale possibility and both are good form investors.
I have no position in Target.
Sometimes in life things seem just a bit too odd to be just a coincidence. Thus the predicament us watchers of Sears Holdings (SHLD) Chairman Eddie Lampert find ourselves in after the strange timing of the upcoming Q3 earnings release.
The site Concentrated Value posts:
“According to Pershing Square Capital Management 13-F, Bill Ackman has accumulated a 5 million share stake in Sears Holdings. He is currently SHLD’s fourth largest institutional holder. I imagine Ackman wouldn’t make such a significant bet on SHLD if he didn’t see a catalyst.
Bill Ackman is scheduled to present at the Value Investing Congress (agenda link) on November 28th, 2007. Will Bill announce his intention and vision in buying into SHLD? Will he agitate Sears to sell underperforming stores to Target (TGT)? (He owns a large stake in Target as well) Will he mention the Sears Canada takeover he was involved in?
The date of the Value Investing Congress is significant because the following morning Sears Holdings will release Q3 earnings. Consider SHLD released Q3 earnings last year on 11-16-2006, investors will be curious to see if there is any significance to the two week delay. Will SHLD announce an acquisition? A majority position by ESL? Will they announce additional income and buyback programs from the sales of the Sears Canada HQ? Considering the 100% institutional ownership in SHLD, all eye will be on Lampert. “
I had not consider this when I posted on it Friday. Now, usually I dismiss 90% of what is said about Lampert immediately but this one really got me thinking. If it were not for the unusually late earnings release, none of this would be an issue but the timing of both, is a bit odd.
I am not a huge believer in pure coincidence when it come to this stuff. It will be a very closely watch couple of days. Ackman speaks at 9:40 am.