Ackman

I live in the Midwest and read about the evil Ackman bullying Target. The newspaper is pretty biased to the effect that Target is just fine and the hedge fund manager is simply being a bully. I’m curious as to how the news is being printed on this matter out East. The blows are hitting faster and lower as the proxy fight between Target Corp. and activist investor William Ackman enters its final week. Ackman, whose Pershing Square Capital Management fund is Target’s third-largest shareholder, is gunning to put himself and four others on an expanded Target board of directors. The Minneapolis-based retailer is defending four incumbent directors. In a flurry of dueling news releases Friday – a crucial voting day because of the holiday weekend – barbs were traded, words from an ancient Chinese warrior were brought to bear and the volume on the rhetoric dial got kicked way up in the countdown to Thursday’s shareholder meeting. Ackman started the back-and-forth by calling for two of Target’s board members – one whose term isn’t over – to “step down promptly,” in accordance to corporate bylaws, because their employment had changed. In the early-morning missive, Ackman’s candidate and governance guru, Ronald Gilson, accused Target of “poor corporate governance.” At issue: Target board member Solomon Trujillo, who is up for reelection, recently resigned as CEO of Australian telecommunications company Telstra Corp. Another director, Anne Mulcahy, whose term expires in 2010, will retire as CEO of Xerox Corp. on July 1, but will remain as chairwoman. Ackman, who is campaigning for “fresh perspectives and more relevant experience,” zeroed in on Trujillo. He relied on an Australian trade publication to disparage Trujillo’s record at Telstra. He then accused Target’s board of extending its director’s term limits to 20 years specifically for Trujillo, who has served for 15 years. (Trujillo formerly was head of the US West phone company before it was acquired by Qwest.) Within 45 minutes of Pershing Square’s first dispatch, Target shot back, scolding Ackman’s “personal attack” on Trujillo as “shameful and wrong.” As for the resignation requirements of Trujillo and Mulcahy, Target faulted Ackman and Gilson for proffering an “inaccurate and misleading reading.” “We are surprised that Mr. Ackman and Professor Gilson apparently did not read Target’s entire corporate governance guidelines,” said the retailer. It cited another policy that it said applies in this case, in which directors who “retire from principal employment” may serve up to three more years. Saying Ackman’s campaign has become “desperate,” Target used an embellished quote from Sun Tzu, the sixth-century B.C. Chinese general, which was published in the Financial Times: “Tactics without strategy, however clever, are merely the noise before defeat.” (The actual quote from Sun’s “The Art of War” is: “Tactics without strategy is the noise before defeat.”) But big investors and the media aren’t the only ones getting plied with competing messages in the increasingly bitter contest. Just ask Marty Swain. Her retirement account includes shares in Target. When the retailer’s ballot arrived, she went online right away and voted. Then she got a second ballot. A few days later, she pulled three more from her mailbox – two from Pershing Square and another from Target. “I keep getting these ballots!” said Swain, of Shorewood, who’s semiretired from the University of Minnesota’s Infectious Disease Department. "I usually get one ballot. Now I’ve got five total. “After I got the second one, I went online to see if it would take the vote. I thought surely it would give me an error message. When it went through, I thought, ‘What the heck is this?’ I wish they’d explain it.” The crush of mailings must have obscured the point, despite the message both sides make in boldfaced, capital letters in their campaign literature: Only the latest arriving proxy card counts. (In proxy campaigns you can indeed vote early and vote often.) “It feels like a political campaign,” Swain said. "You get material from Pershing, he seems to know a bunch that we don’t. Then you get the thing from Target. “You’d hope a company like Target knows what it’s doing.”

I followed his Target play a while ago and he kept saying he was friendly with Target management. He wanted to spin off their real estate into a reit. It is hard to do anything like this that takes away power from the board/management. I say good luck to him!

I live in the midwest as well. The plan isn’t based on any factual data as far as I can tell. He made a bet when Target’s stock was trading high, and he’s lost a lot of money on it. He thinks that Target’s real estate isn’t fully reflected in the company’s value. In reality, I would have to believe that Target’s management has a better idea of what its property is worth than a hedge fund manager who doesn’t have access to detailed information regarding the portfolio of real estate. That said, the argument that Target’s core business is consumer retail and that it shouldn’t be using time and resources to manage real estate seems to have some merit. Additionally it would provide Target with a hefty cash windfall, although I’m not sure what would be done with these funds.

Ackman’s plan isn’t based on factual data? You just think he’s doing this cuz he paid too much? You must not know Ackman. I’d rather have Ackman steering my capital than some old boy geezers on the Target board. His idea was that reits trade at higher multiples and get a tax advantage. Target management doesn’t care about that. They want power!

KJH Wrote: ------------------------------------------------------- > Ackman’s plan isn’t based on factual data? You > just think he’s doing this cuz he paid too much? > You must not know Ackman. I’d rather have > Ackman steering my capital than some old boy > geezers on the Target board. His idea was that > reits trade at higher multiples and get a tax > advantage. Target management doesn’t care about > that. They want power! What I meant by that is I far as I am aware there’s no way for him to really know that Target’s real estate assets aren’t fully reflected in current valuations. Sure you could spin off the assets and if it trades at a higher multiple it will indeed unlock value for shareholders, as long as it doesn’t result in higher operating costs in the long-run. I would agree that Target’s management just wants power, but how is that any different than Ackman? He just wants power. Like I said, Target is a consumer retail business - not a real estate company. What business does Ackman have running the company?

I like Ackman and I think he will do far more to create value for shareholders than management has done as of late.

His problem is that he thinks people are rational. He thinks just because value exists it can be unlocked. Throughout the history of publicly-traded time, management and shareholders have proven again and again that they don’t behave rationally.

artvandalay Wrote: ------------------------------------------------------- > KJH Wrote: > -------------------------------------------------- > ----- > > Ackman’s plan isn’t based on factual data? You > > just think he’s doing this cuz he paid too much? > > > You must not know Ackman. I’d rather have > > Ackman steering my capital than some old boy > > geezers on the Target board. His idea was that > > reits trade at higher multiples and get a tax > > advantage. Target management doesn’t care > about > > that. They want power! > > > What I meant by that is I far as I am aware > there’s no way for him to really know that > Target’s real estate assets aren’t fully reflected > in current valuations. Sure you could spin off the > assets and if it trades at a higher multiple it > will indeed unlock value for shareholders, as long > as it doesn’t result in higher operating costs in > the long-run. > > I would agree that Target’s management just wants > power, but how is that any different than Ackman? > He just wants power. Like I said, Target is a > consumer retail business - not a real estate > company. What business does Ackman have running > the company? Ackman doesn’t want to run the company, just a board seat. Target management doesn’t want to change the board because they have more power over the current entrenched board than they would over Ackman and/or his slate. And Ackman has plenty of business being involved with how the company is run (at the board level) given that he owns like 20x more of the company than the current Management and Board combined. The point you make about Target being a consumer retail business, not a real estate business is EXACTLY the point that Ackman is making about spinning off the real estate. I’m willing to bet that Ackman knows a LOT more about the valuation of real estate assets than Target mgt (whose job isn’t to know about real estate, but rather retail.) I’m also certain that he uses “factual data” (as opposed to nonfactual data?) to support his conclusions about the real estate values.

Fair enough

He also had some really creative ideas on how much the reit would pay out as a dividend. He basically tied the dividend to the inflationary forces that Target benefits from. At the same time, traditional fixed income and reit investors demand protection from this inflationary force… a win/win situation (theoretically).

There is an ~80 slide deck floating around on Pershing Square’s plan which is pretty comprehensive and gives a good indication of the amount of time that must have gone into PS’s diligence. They likely spent 1,000s of hours and several hundred thousand dollars if not several million on diligence. I know they run a pretty comprehensive research process. I’ve heard Ackman speak at various conferences and functions and have always been impressed with the clarity of his thinking. It seems like he’s got himself caught up in a bad situation- he put a nice plan together but then tried to implement the investment through calls on TGT, therefore giving him a limited amount of time to unlock value. He probably did not set out to turn it into a mudslinging contest with the board candidates but basically has to now to try to monetize the idea, especially since TGT has been caught up in such nasty anti-retail headwinds. Attached is a link to a nice Ackman piece in the now defunct Portfolio: http://www.portfolio.com/executives/2009/04/22/Hedge-Fund-Manager-Bill-Ackman?page=0

One other thing worth checking out is the Charlie Rose interview with Ackman. I’m sure it’s either on YouTube or the Charlie Rose website. It must have taken serious chutzpah to short MBIA in 2002 and wait it out. I believe a big portion of his carry on that investment went to charity. He’s quite involved in philanthropy.

I remember that! Charlie didn’t give him time to talk about Target.

VOBA Wrote: ------------------------------------------------------- > The point you make about Target being a consumer > retail business, not a real estate business is > EXACTLY the point that Ackman is making about > spinning off the real estate. I’m willing to bet > that Ackman knows a LOT more about the valuation > of real estate assets than Target mgt (whose job > isn’t to know about real estate, but rather > retail.) I’m also certain that he uses “factual > data” (as opposed to nonfactual data?) to support > his conclusions about the real estate values. beat me too this point…

I agree that it might make sense to spin off the real estate, but it seems like terrible timing to try do so in the current market environment.

LOL. by the time the lawyers finish the market will be fine!

Working in the hedge fund industry, I have followed the Target situation very closely. Regarding evil hedge fund managers, I believe they got this reputation only because you would assume anyone worth hundreds of millions that wants to make more money has to be greedy and cut-throat. In reality, they are the success stories of true capitalism. These smart investors throw huge amounts of capital into companies and provide economic growth. They provide investors with a higher rate of return at a lower level of risk than mutual funds, etc. could ever provide. Overall, I heard Bill is a great guy and very bright. His father ran a large real-estate company, so I am sure he has learned about investing in that area and strategies for his entire life. That knowledge paired with a Harvard MBA and 15 or so years as an overall very succesful hedge fund manager makes me think his idea of the REIT spinoff (land only, Target would still own buildings) has to be a legitamit idea. Additionally, a number of leading independent advisory/due dillegence firms agreed that the Target board has major deficiencies. Supposedly, if the credit business and REIT spinoff were sold off at the market value that has been estimated, the total amount of the sell would almost equal the total current market cap of Target. This would imply that their core retail business has almost no value at all, if not negative. It sounds like this proxy vote could really go either way. I have heard that Target is very reputable in the investing community, so regardless of any points Ackman brings up, institutional investors will side with Target. With PS IV (the Pershing fund invested SOLEY in Target) down close to 90% inception to date, investors are not happy. That combined with Bill’s personal investment of 55 million in Target and all of the publicity, I believe this decision could have a big impact on his reputation and success.

^ I agree. I too have heard Ackman speak at conferences and he definitely seems like a sharp guy. I can’t speak to the ability of Target’s board but judging by the average excutive in corporate america I would say that the company would be better off with Ackman running the show. Lets not forget that Riskmetrics has backed Ackman in the proxy battle, which is a big stamp of approval.

Wow looks like Ackman lost this one according to preliminary proxy results!

Wow looks like Ackman lost this one according to preliminary proxy results!