Activist investor William Ackman has tailored his proposal to spin the land on which Target Corp. stores sit into a separate real estate investment trust, or REIT, to better address the retailer’s concerns.
Ackman, whose Pershing Square Capital Management LP controls just under 10 percent of Target shares, proposed on a conference call Wednesday “test-driving” the REIT with a minority stake initial public offering of less than 20 percent valued at about $5 billion.
In a presentation last month, Ackman suggested a complete spin-off of the land as a way to raise Target’s stock price, which he considers undervalued. That idea raised concerns at Target about the retailer’s credit rating, financial flexibility and the potential for the deal to distract management.
In the revised transaction, Target would create the REIT, go through with the minority IPO and sell off the remainder of its credit card receivables business before putting more of the REIT’s shares on the market.
Target could then use $3 billion of the $5 billion raised by the IPO, another $4.4 billion from the credit card sale and additional cash from operations to pay down $9.2 billion in debt, Ackman said. The moves would allow Target to maintain its top-grade credit rating, he said.
The company has sold 47 percent of its credit card business to J.P. Morgan Chase & Co. since 2007.
“We think the sooner the company does this, the better position the company is in to take advantage of market opportunities and the better the balance sheet is for the company,” Ackman said.
Target was examining the proposal. “Our analysis is still in process, no decision has been made and we will share our conclusions once the analysis is complete,” a spokeswoman said.
Ackman estimated Target could be ready for the IPO by late in next year’s third quarter, and it would take about another year for the company to be ready to spin off the REIT entirely. Should Target decide against the move after the IPO, Ackman suggested it could buy back shares at a rate agreeable to investors.
Assuming the spin-off of the remaining 80 percent interest occurred in 2010, Ackman said the revised transaction would increase the combined stock price of the two public entities to $79 from $37 by that year.
The proposed REIT would lease the land back to Target under a 75-year master lease agreement that would be tied to the inflation rate. The Minneapolis-based retailer owns about 95 percent of its stores and roughly 85 percent of the land under them. The new REIT would be the largest in the country.
Target shares fell 10.3 percent to $26.96 Wednesday as the Standard & Poor’s Retail Index dropped 7.1 percent overall.
“Some investors are concerned about timing given the markets, others are concerned given Target’s less than enthusiastic reaction,” said Todd Slater, equity analyst at Lazard Capital Markets. “I think Ackman’s plan has many merits.…It’s clearly proactive
My character, Dinah Madani, is just the coolest, [most] badass woman imaginable," says @amberroserevah. The actress stars in @marvel's newest series on @netflix, @thepunisher. To prepare for her role, Revah sat down with Homeland agents to get a real sense of with Dinah's day-to-day life is really like. Read our full interview on WWD.com. #wwdeye (📷: @jilliansollazzo)
A scene from the 91st annual @macys Thanksgiving Day Parade. The parade, which boasts 50 million TV viewers and 3.5 million on-site spectators, is considered one of the largest and most watched parades in the world. (📷: Jason Szenes/EPA-REX)
The circus came to @bloomingdales 59th Street on Tuesday night and lit up Lexington Avenue with acrobatic dancers, death-defying knife throwing, sword swallowing and aerial acts with no net. The 45 minutes of theatrics built up to unveiling the holiday windows depicting @swarovski crystal-encrusted circus pieces and scenes from “The Greatest Showman” – songs from the soundtrack included. See the rest of the photos on WWD.com #wwdfashion (📷: Joshua Scott)
The psychedelic fashion that pervaded the ’60s is back with an exhibit at the @museumofcityny. “Mode New York: Fashion Takes a Trip” chronicles the changing styles from 1960 through 1973 and features designers such as @ysl, @oscardelarenta and more. The exhibition, which is on display through April 1, is organized into four periods: First Lady Fasion, Youthquake, New Bohemia and New Nonchalance. Pictured here is model Pat Bardonella during the Garvey Day Parade in 1968. (📷: @kwamebphoto) #wwdeye #wwdfashion
“People should be a lot more honest in expressing both the dark and light of themselves. We need to give each other the space to do that because it’s the only way we can grow and evolve,” says @noelwells of her new film “Mr. Roosevelt,” which is largely based on her own struggles. Unexpectedly leaving @nbcsnl in 2014 after just one season, Wells felt set back in her self-esteem and career trajectory. She quickly refocused her energy to more personal projects, which led to the completion of “Mr. Roosevelt.” Read the rest of WWD’s interview with the “Master of None” actress on WWD.com #wwdeye (📷: @jilliansollazzo)
@barbrastreisand is giving fans a chance to see her perform up close in a new concert series, which makes its debut on @Netflix today. From behind-the-scenes takes to her concert performance in Miami last December, the two-hour streaming special captures Streisand in her element. Pictured here is the singer/actress photographed for WWD in 1963. (📷: Palmieri Tony) #wwdeye #wwdarchive
@chanel and @pharrell dropped what’s being dubbed as the world’s most exclusive sneakers yesterday. The Adidas Originals NMD Hu, which Williams designed in collaboration with Chanel and @adidasoriginals, has a waiting list of over 120K people who pre-registered online at chanelatcolette.fr –– and only 500 pairs are on sale. The singer predicted the resale value of the shoes could reach $40K. Read the full interview on WWD.com. Link in bio. #wwdfashion (📷: Dominique Maître)
@imanshumpert is diving deeper into his creative endeavors and relaunching his clothing line, Post 90s, and is helping to raise money for the hurricane victims in St. Maarten with a jersey he’s designed with his brother. The Cleveland Cavaliers player talked to WWD about kneeling during the national anthem, working with fashion brands and how he wants to be more than an @nba player. Read the interview on WWD.com #wwdfashion (📷: George Chinese)