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By William Patalon III
Managing Editor
Pershing Square Capital Management LP, the hedge fund run by activist investor William Ackerman, has taken a 9.6% stake in upscale discounter Target Corp., the New York-based investment fund disclosed in a Securities and Exchange Commission filing yesterday.
Ackerman's interest in Target (NYSE: TGT) was first revealed in a Bloomberg News report Thursday, fueling a market surge that sent the Dow Jones Industrial Average and the Standard & Poor's 500 index to new records. The 30-stock Dow advanced for the third straight day yesterday, stopping at a record that's only 50 points below the 14,000 level. With the continued surge, the closely watched blue-chip index continues to buck some significant odds in the form of some major issues that continue to face the U.S. economy.
Ackerman and Pershing Square said they made the investment, believing that Target's shares are undervalued. Ackerman and the hedge fund are looking to meet with management and seek ways to push Target's stock price up to levels reflecting it's actual value. Talks with the retailer could cover such topics as its businesses, strategies, operational issues, capitalization and financial condition and other relevant topics. It's widely believed Ackerman wants Target to shed its Target card financing unit, although Target says that's a core piece of its retailing strategy.
Pershing Square apparently began accumulating Target shares back in April. In the last 52 weeks Target's share price has soared approximately 45%. One problem may be that the shares of major discount retailers are trading at an industry average of 24 times projected earnings, Target's shares are trading at about 19, or 21% less.
Ackerman's Pershing Square fund has about $300 million in assets and reportedly has had returns in excess of 40% over the past two years.
Ackerman waged long-and-fierce battles against burger giant McDonald's Corp. (NYSE: MCD) and Wendy's International (NYSE: WEN), where he actually pushed management into selling off its Tim Horton's unit.
Ironically, the leaner Wendy's is itself now the topic of takeover rumors: Late last week, Wendy's shares spiked on market speculation that it might have whetted the appetite of surging Yum! Brands (NYSE: YUM), the former PepsiCo Inc. (NYSE: PEP) spin-off that markets salty snacks like Frito-Lay corn chips and runs the KFC and Taco Bell fast-food chains.
And that is just the latest takeover rumor concerning Wendy's, the burger chain made famous by its founder and chief spokesman, the late Dave Thomas. Wendy's recently said it would even explore a possible sale as part of its plan to maximize shareholder value.
Before the speculation regarding Yum! Brands emerged, billionaire investor Nelson Peltz was said to be an interested suitor. Peltz's Triarc Cos. Inc. (NYSE: TRY) operates the Arby's fast-food chain, which Peltz says is a "natural fit."
Peltz, who stepped down as Triarc's chairman and CEO, also heads the Trian Fund Management LP, which owns a little more than 8% of Wendy's.
