Target rejects Pershing's real estate proposal

NEW YORK (Reuters) - Target Corp TGT.N on Friday rejected as "highly speculative" proposals made by hedge fund manager William Ackman that he said would unlock the value of its real estate and boost the discount retailer's sagging stock price.

“Following a thorough review of the transaction outlined by Pershing Square ... the company has concluded that the potential value created, if any, is highly speculative and insufficient to merit pursuit of a transaction,” Target said in a statement.

Ackman was not available for an immediate comment.

Target’s shares, which closed up 8 cents at $28.08 Friday on the New York Stock Exchange, fell to $26.50 in late trading.

Late last month, Ackman, whose hedge fund firm Pershing Square Capital Management owns a stake of about 10 percent in the Minneapolis-based retailer, urged Target to spin off to shareholders a real estate investment trust that would own the land underneath Target’s stores.

He said the deal would unlock the value of the discount retailer’s real estate portfolio, which he put at $39.1 billion, and lift its stock, which has fallen 44 percent this year.

Ackman, who has a reputation for politely but persuasively pushing companies to spin off divisions or streamline management to lift share prices, said he had been discussing a proposed transaction with Target since May. He said he took the proposal public to see if there was widespread support for the spin-off among other Target shareholders.

But Target quickly responded that the proposal raised serious concerns, and moving assets to a REIT entity could reduce its financial flexibility and hurt its debt ratings.


Wall Street analysts also chimed in, saying they doubted Target would pursue such a transaction as an economic downturn had upended its business, curtailing shoppers’ ability to splurge on its trendy wares and make payments on its credit cards.

On Monday, Target reported a nearly 24 percent drop in quarterly profit and announced a series of moves designed to conserve cash and protect its liquidity, including temporarily suspending nearly all of its share buybacks and cutting its 2009 capital spending plan by $1 billion.

It said at the time that it was continuing to evaluate Ackman’s proposal, and Ackman then came out with an updated plan on Wednesday that he said addressed Target’s concerns, including allaying fears of a credit downgrade.

He proposed that Target spin-off 20 percent of the REIT in an initial public offering and use the $5 billion raised from the IPO to pay down debt.

In a research note earlier on Friday, Lazard Capital Markets analyst Todd Slater said the proposal was “worthy of serious consideration.”

“Ackman’s plan to spin off the land beneath TGT’s buildings into a tax-favorable TIP REIT sometime in late 2009 is worth closer scrutiny, as it appears to be a well-conceived method of unlocking considerable value in TGT’s underappreciated real estate assets,” he wrote.

But Target said on Friday that its management, board and outside adviser Goldman Sachs GS.N had reviewed the transactions and the company decided "not to pursue them further."

“Target does not share Pershing Square’s perspective that execution of this proposed transaction will generate measurable shareholder value over time,” said CEO Gregg Steinhafel in a statement.

Additional reporting by Svea Herbst-Bayliss in Boston; Editing by Bernard Orr