Activist Investor Ackman Acquires Target Shares

Pershing Square Capital, a fund run by activist investor Bill Ackman, has been buying stock in discounter Targetand has now accumulated more than five percent of outstanding shares, a source close to the situation said.

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

Rumors have been circulating on Wall Street that an activist investor was seeking a stake in the discounter. The speculation has centered on the possibility of an activist investor putting pressure on Target's board to spin off the company's credit card division. Many analysts have been skeptical of how beneficial a spinoff would be for shareholders.

Citigroup analyst Deb Weinswig estimates that such a transaction "would be neutral to our 2008 EPS estimate."

Further speculation has circulated around the possibility of Target selling and leasing back some of its considerable real estate assets. Merrill Lynch estimates that a sale leaseback would raise $23 billion dollars. Target’s real estate is worth 32 percent of its current market cap (including debt). That asset is substantial when compared to Costco's real estate assets, which are valued at 22 percent of its market cap and 17 percent at Wal-Mart.

The source said Ackman is interested in pushing for change at the discounter, but it is not clear he would push for the spinoff of the credit card division. Ackman declined to comment. A Target spokesperson was unavailable for comment.

Target shares have traded up 3.83 percent over the past month in part due to the speculation. On the day, Ackman's share acquisition added to upward support for Target shares which gained 6.7 percent with help from news that the company is forecasting July's same store sales growth will come in between 5-7 percent.