Target Corporation (NYSE:TGT) has confirmed that activist Bill Ackman’s Pershing Square has shared various ideas for an alternative ownership structure related to Target real estate. It also said that this has been going on since May. The company has been evaluating these ideas with the assistance of outside advisors, including Goldman Sachs Group (NYSE: GS). What is interesting today is that this could act as an inadvertent jumpstart for Eddie Lampert and Sears Holdings (NASDAQ: SHLD) after a long and painful ride south.
Target said it has not yet reached a conclusion regarding the merits ofthese ideas. The company noted that its own analysis raises seriousconcerns on a number of important issues that have been shared withPershing Square. This morning, Pershing Square said it was going tomake a presentation tomorrow where it will detail a potentialtransaction that Pershing Square believes will build long-term valuefor Target Corp. and all of its stakeholders. The presentationis said to be of interest to investors and analysts focused on retail,real estate, fixed income and credit.
We still do not know exactly what the transaction(s) will consist of.An obvious thought is a sale-lease-back arrangement. In Target’sannual report for 2007, the company listed over$5.5 billion in land assets and listed a much larger figure of $18.3billion in buildings and improvements, as well as over $3.8 billion infixtures and equipment. We also know that Target has reviewed itscredit card operations for quite some time.
So here is what is interesting. This could very easily be applied toEddie Lampert and Sears Holdings (NASDAQ: SHLD). Sears has been anawful retailer, and its executives would probably even tell you the same thingpoint blank. The key difference between the dismal stock performancesseen at both Target and at Sears is that Target flourished for quitesome time, yet Sears has has been thought of as an asset play.
Eddie Lampert is still sitting on some valuable dirt when the dustfinally settles in this awful economy. Both companies have usedcreative financing before. Sears listed on its 2007 annual report $2.08 billion in land and well as over $6.1billion in buildings and improvements. There is still a lot that canbe done to unlock some of these balance sheets.
But there is another difference, and one which shareholders need toknow. Target is not a closely held company. Sears is not technicallyclosely held, but it is for all practical purposes under the control ofEddie Lampert. Any changes that come to Sears will only be from Lampert WANTING to make a change.
There are many key opportunities today for these retailers. Now let’sjust hope that whatever is proposed is better for the companies on along-term basis rather than just for the greater good of today at theexpense of tomorrow.
Jon C. Ogg
October 28, 2008