Why Ackman Can't Back Down from Target Fight

A Dog of a Campaign

A Dog of a Campaign

Barron’s writer Andrew Bary gave voice to a question that is probably on many analysts’ and investors’ minds…what exactly is Bill Ackman‘s beef with Target (TGT)?  The company has done just about everything right.  Pershing Square‘s Ackman is basically barking up the wrong tree and I think I know why.  He’s painted himself into a corner.

From Barron’s:
Target is under attack by an activist investor who has lost his shirt, and his clients’, in a hedge fund that bet the wrong way on the direction of the company’s shares. Bill Ackman, head of Pershing Square Capital Management, launched the unusual single-stock fund, Pershing Square IV, in 2007, investing $2 billion only in Target call options and other derivatives. The fund lost 90% of that money as Target’s shares plummeted 50%, to 31 earlier this year. The fund has recovered somewhat since then, as the shares have rebounded to 41, but it remains down about 80% since inception.

The rest of the article goes on to detail how much better Target has done than almost all competitors, how well they’ve navigated the recession thus far and how uninspired the rest of TGT’s investors are by this proxy contest, which will be resolved later this week.  Management also publicly scoffs at Ackman’s contention that Target selling off it’s real estate portfolio or spinning it into a REIT will add value.  They view this whole thing as a distraction, and they are probably right.

Why then is Pershing Square pursuing this multi-million dollar waste of time?  The answer is simple: they have no choice.  When you launch a “single-stock” fund, there is basically no turning back without admitting you are wrong.  Guys at Ackman’s level do not make such admissions, even under pain of water-boarding.

His problem here is the whole “sell the real estate, lease back the stores’ space, unlock the property value” thing.  That concept is so 2005.  Many companies (especially retailers) have played this game at the behest of activist shareholders like Ackman and I can’t think of very many success stories.

I can think of some high-profile failures, like bankrupt Six Flags, which pursued the land-selling strategy at the behest of activists who eventually took the company over, including Dan Snyder (Redskins Owner) and his puppet CEO (Mark Shapiro from ESPN).  They sold a bunch of land, licensed the Six Flags name and logo to sell water guns in Wal-Mart (WMT) and pretended to be doing something about the gangs in the parks, but at the end of the day, the strategy failed.  With a distressed company like Six Flags, real estate value being unlocked would not fix a broken business.

In the case of Target, real estate is not holding the company back at all.  It’s 2009, and Ackman’s 2007 vintage fund concept is played out.  The best thing that can happen to him is a defeat for the board seat he seeks with his 3% stake so he can walk away “having tried his best”.  I predict his loss and subsequent liquidation of the Target-only fund within a month or so.

Ackman is talented and Pershing Square has a good track record; as a fan of activism in general, I think Bill’s wasting his time on this one, as do most other spectators.  Move on, Pershing Square.  Target’s not a worthy target.

Full Story: Campaign Off-Target (Barron’s)

Full Disclosure:  I am not long or short shares of TGT.  Do not trade based on anything you read on this site.

Tags: , , , , , ,

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. Adam commented on May 25

    Good points. I’ve always heard good things about his other funds, but the whole concept of a Target-only hedge fund just seems bizarre.

    This episode will probably go down as a lesson on why you should never fall in love with a stock. Ackman was quite infatuated with Target.

  2. Adam commented on May 25

    Good points. I’ve always heard good things about his other funds, but the whole concept of a Target-only hedge fund just seems bizarre.

    This episode will probably go down as a lesson on why you should never fall in love with a stock. Ackman was quite infatuated with Target.

  3. Adam commented on May 25

    Good points. I’ve always heard good things about his other funds, but the whole concept of a Target-only hedge fund just seems bizarre.

    This episode will probably go down as a lesson on why you should never fall in love with a stock. Ackman was quite infatuated with Target.

  4. Chris commented on May 26

    What track record? He blew up his first fund – Gotham Partners when he invested in several real estate deals public and private.
    And for his unrelated relationships? Michael Ashner from Winthrop installed after Ackman took over First Union Real Estate Investment Trust now Winthrop.

  5. Chris commented on May 26

    What track record? He blew up his first fund – Gotham Partners when he invested in several real estate deals public and private.
    And for his unrelated relationships? Michael Ashner from Winthrop installed after Ackman took over First Union Real Estate Investment Trust now Winthrop.

  6. Chris commented on May 26

    What track record? He blew up his first fund – Gotham Partners when he invested in several real estate deals public and private.
    And for his unrelated relationships? Michael Ashner from Winthrop installed after Ackman took over First Union Real Estate Investment Trust now Winthrop.

  7. Absolute Vans commented on Sep 20

    … [Trackback]

    […] Read More here on that Topic: thereformedbroker.com/2009/05/25/whats-ackmans-point/ […]

  8. tor directory search commented on Oct 11

    … [Trackback]

    […] There you will find 19668 additional Info to that Topic: thereformedbroker.com/2009/05/25/whats-ackmans-point/ […]

  9. exotic weed for sale commented on Nov 21

    … [Trackback]

    […] Info on that Topic: thereformedbroker.com/2009/05/25/whats-ackmans-point/ […]