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
EXCLUSIVE: @tomford is opening its first-ever beauty store. The boutique, which opens November 20 in London’s Covent Gardens, was designed with the over-the-top glam Ford is known for. Read the full story on WWD.com, link in bio. #wwdbeauty #wwdnews (📷: Simon Wagner) #TomFordBeauty
New York-based DJ @harleyvnewton threw a party to celebrate the holiday collection of her dress and pajama line @hvn at the Ladurée Beverly Hills. It Girls @katebosworth, @rashidajones and more joined in on the fun, which included cocktails, croque monsieur sandwiches and a photo booth. #wwdfashion (📷: Owen Kolasinski/BFA.com)
For the holidays, @Burberry partnered with 20-year-old artist @blondeymccoy on a series of three outdoor murals in downtown Manhattan. The murals are McCoy’s interpretation of a Christmas eve party, the idea of charity and the spirit of family. His third mural, pictured here, is the most personal. The image depicts McCoy’s grandparents and father in London’s Trafalgar Square in the Seventies. “My work often features lots of sentimental objects.” #wwdeye
For spring 2018, designers applied bold colors and cartoonish motifs on everything from sneakers and belts to key chains. See all the top men’s accessories trends on WWD.com. #wwdtrends (📷: George Chinsee; Prop Styling by @rnasti; Market Editor: @luiscampuzano)
The @dior-sponsored @guggenheim international gala pre-party has a history of drawing cool-girl musical acts to serenade the crowd –– and last night was no exception. @haimtheband performed songs both new and old, and lured a star-studded audience with the likes of Rebecca Hall, Kate Mara, Mamoudou Athie and more. #wwdeye (📷: @lexieblacklock)
In a partnership between the @metopera and the @englishnationalopera, “Marnie” was born. The opera, with costumes sponsored by @mrporterlive, is an adaptation of the 1961 thriller by Winston Graham. Arianne Phillips, who created the costumes, is no rookie: She’s styled Madonna for her tours and created costumes for a myriad of films in the past. Read WWD’s interview with Phillips, where she talks about her inspiration for the opera’s costumes on WWD.com #wwdfashion
@barneysnyc took a different approach to their holiday windows this year. Instead of Christmas decor, Barneys tapped @thehaasbrothers to tell a story of positivity, gratitude and inclusivity via heartwarming silliness and humor. “It’s about kids and it’s about coming together and being family and loving each other,” said Simon Haas. #wwdfashion (📷: @joshuascottphoto)
Beauty influencer @kandeejohnson makes her foray into hair care with a collaboration with @ogx_beauty — making it the first time that OGX has teamed up for a product creation. The collab includes shampoos and conditioners in three scents. At 39 and a mom, Johnson is a different profile than the emerging social media stars, but is considered one of the pioneers of the digital beauty influencer world. Read WWD’s interview with her on wwd.com, including the strangest beauty product she’s ever tried #wwdbeauty