Shareholder Proposes Target Spin Off Property Company
New York City Pershing Square Capital Management LP, which owns just under 10% of Target’s common stock, on Wednesday proposed a plan to spin off the chain’s real estate holdings. Pershing says the plan could increase the value of the company, send shares higher and create long-lasting value for the company, according to the Associated Press.
Pershing Square is proposing that the company spin off a type of real estate investment trust which will own the land under its buildings. Target would lease the land back under a 75-year lease.
Target owns most of its buildings as well as the land under its buildings, according to the Pershing Square hedge fund, led by investor William Ackman.
“There is a very large real estate company, one of the largest in the country, inside the business,” Ackman said during a public presentation on the proposal.
Under the proposal, the REIT would be the exclusive land developer for Target for two years, and after that be the preferred vendor. The chain would be able to make any capital improvements to its buildings—such as increasing fresh-food sections and expanding square footage—because it would maintain control of the buildings.
The spun-off REIT would be the 62nd largest company in S&P 500 if it existed, Ackman said. It would be the largest REIT in the country.
Ackman said the move could send Target’s shares up from $40 to $70 by increasing the company’s value.
Pershing, which also has a stake in bookseller Borders Group Inc., earlier this year pressured Target to make a financial move with its assets. Target ended up selling 47% of its credit-card receivables to JPMorgan Chase for $3.6 billion in May.
The move assumes Target will sell the rest of its credit-card portfolio by 2009.
Target released a statement Wednesday saying it has not yet reached a conclusion regarding the merits of the proposal. But it said its analysis had raised serious concerns on a number of issues, including:
- The validity of assumptions supporting Pershing Square’s market valuation of Target and the separate REIT entity;
- The reduction in Target’s financial flexibility due to the conveyance of valuable assets to the REIT and the large expense obligation created by the proposed lease payments, which are subject to annual increase;
- The adverse impact that the company believes the proposed structure would have on Target’s debt ratings, borrowing costs and liquidity, exacerbated by current market conditions; and
- The risk of diverting management’s focus away from core business operations over an extended time period to execute such a complex transaction, particularly in the current environment.
Lhermite joins Playlogic as manager of Game Factory
AMSTERDAM, Netherlands and NEW YORK Playlogic Entertainment announced that Olivier Lhermite joins Playlogic as managing director of its in-house development studio; the Playlogic Game Factory. Lhermite previously worked as group technical director at Electronic Arts on popular franchises like the FIFA, NBA and NHL series.
Dominique Morel, chief technical officer at Playlogic, said: “Olivier’s strong managerial background and vast industry experience will help us to embark on new exciting IPs and technological excellence.”
Whirlpool to cut 5,000 jobs
BENTON HARBOR, Mich. Whirlpool announced that in order to reduce costs, it has cut approximately 5,000 jobs across its global organization, including both jobs that have already been announced through plant closures along with new reductions taking place now and through the end of 2009.
In North America specifically, Whirlpool said the cuts would affect about 500 positions.
According to Jeff Fettig, Whirlpool chairman and ceo, the actions are expected to produce savings of approximately $275 million on an annualized basis. “While decisions to eliminate jobs and close facilities are very difficult, they are necessary to create a cost-effective business structure. These changes will ensure that our company is proactively taking the necessary steps to adjust its cost structure and production capacity to lower expected demand levels.”
Whirlpool’s staff reductions come after the company announced that earning from continuing operations decreased 7% to $163 million, or $2.15 per diluted share, compared to $175 million, or $2.20 per diluted share reported during the previous year’s quarter. Revenue of $4.9 billion for the quarter increased 1% from the $4.8 billion reported in the third quarter of 2007.
“We are in the midst of a rapidly changing and very challenging economic environment. We have seen a sharp drop in demand in North America and Europe during the third quarter, and we do not expect demand conditions to improve in the near term,” said Fettig, Whirlpool chairman and ceo. “Our third-quarter results were negatively impacted by declining demand and record levels of cost inflation. These unfavorable factors were partially offset by improved price/mix and productivity.
“The global credit crisis has had a profound negative impact on what was already a weakening and very fragile global economy. Declining home values, rising unemployment and very low consumer confidence levels will likely prolong a negative demand environment at least through the middle of 2009.”