UPDATE 3-Ackman urges Target to spin off real estate assets
(Adds Ackman comments, details throughout)
NEW YORK, Oct 29 (Reuters) - Hedge fund manager William Ackman is urging Target Corp (TGT.N) to spin off a separate company that would own the land on which its stores are built, unlocking the value of a real estate portfolio that Ackman put at $39.1 billion.
On Wednesday, the activist investor said Target should spin off to shareholders a real estate investment trust that would own the land underneath Target's stores. He said the discount retailer would sign a 75-year lease for the land, and would be able to maintain ownership and control of its buildings.
"We've asked the company to do something that's transformational," he said.
Target quickly responded to the proposal, saying that while it has not yet reached a conclusion on the idea, "its analysis raises serious concerns on a number of important issues."
Ackman has made a name for himself shaking up companies such as hamburger chain McDonald's Corp (MCD.N) and payment processor Ceridian. His hedge fund, Pershing Square Capital Management, owns just under 10 percent of Target's shares.
Target's stock has fallen 35 percent this year through Monday. In August, it posted its fourth consecutive quarterly profit drop as cash-strapped shoppers shun purchases of its cheap but trendy clothes and jewelry in favor of basics, like food.
Ackman said he had been discussing a proposed transaction with Target since May and said his dealing with the retailer have been friendly.
He said he took his proposal public to see if there was widespread support for the spin-off among other Target shareholders.
TIP REIT
Ackman said the REIT, which he called Target Inflation Protected REIT, or TIP REIT, would have a market capitalization of about $27.5 billion.
Ackman said the proposed deal could boost Target's stock from the roughly $40 where it currently trades to roughly $70 per share, factoring in the stock price of TIP REIT.
But Target, which has hired Goldman Sachs Group Inc (GS.N) as an adviser, said that moving assets to a REIT entity could reduce its financial flexibility and expose it to higher expenses through the leases it will sign.
The transaction could also hurt Target's debt ratings, borrowing costs and liquidity and risks diverting management attention away from its core business.
Ackman acknowledged that Target's credit ratings could take an initial hit from the transaction he outlined.
But he also said that if the transaction wound up being a disaster, it could be reversed.
"The beauty is you just put the genie back in the bottle and just merge the two companies," he said.
Target said will it will continue to evaluate Ackman's ideas, and would "provide updated perspective, as appropriate, in the near future."
Target shares closed up $2.18 or 5.7 percent at $40.72. (Additional reporting by Svea Herbst-Bayliss in Boston, editing by Jeffrey Benkoe, Andre Grenon, Phil Berlowitz)
