Holiday Central

Target Stock: Pershing Square Capital's Ackman Buying In


A source close to the situation confirmed to me that Pershing Square Capital--a fund run by activist investor Bill Ackman--has been buying stock in discounter Target  and has accumulated more than five percent of outstanding shares.

The Securities and Exchange Commission filing of that purchase is expected to be made next week.

The source told me that Ackman's interest is not necessarily in spinning off Target's credit card division but would not rule it out. The source did say that Ackman will be active for change at the discounter but would only elaborate to say "this will be fun." Ackman declined to comment.

That news added to the already substantial gain in Target shares following today's same store sales numbers. While Target reported comps at the low end of the range--up 3.3%--they forecast sales in July would come in between 5-7%.


Spinning off the credit card division seems an unlikely platform for change at Target--and sources indicate that this is NOT necessarily where Ackman is focused. A hedge fund manager short the stock right now, and tells me that Target's board does not want to sell the credit card division but that TGT shares "added $10 billion in value just on this rumor--it's insane."

Where would the retailer look to create more value? Target's same store sales have been healthy. The discounter has found success in capturing the more upmarket discount shopper and succeeding where Wal-Mart seems to be stumbling. Year-to-date Target shares are up 22.7%.

Pressure to change up management? Selling off real estate? Target does have $5 billion listed as land on the balance sheet. Merrill Lynch sees real estate as the asset with the highest relative value and sees a sale and lease back of land as "30% accretive to C08 EPS." Merrill Lynch analysts Virginia Genereaux and Steve Sakwa estimate that Target's real estate is worth 32% of its current market cap compared to 22% at Costco and 17% at Wal-Mart .

Questions? Comments?