Hedge fund buys 10 percent stake in Targetby Martin Moylan, Minnesota Public Radio
Target has been one of the country's most popular - and profitable - retailers. But hedge fund investor William Ackman believes Minneapolis-based Target can make some moves to put more money in shareholders' pockets.
St. Paul, Minn. — Ackman helps run Pershing Square Capital Management, a big New York hedge fund. And he's been a busy buyer of Target stock lately, acquiring about a 10 percent stake in the retailer, via the purchase of stock and options.
That makes Ackman Target's second-largest shareholder, behind Capital Research & Management. That firm holds about 17 percent of Target's stock, according to recent filings.
Ackman is known for investing in a company and then leaning on management to sell assets, cut costs or make other moves that boost shareholders' returns.
Ackman has done that with McDonald's, Wendy's and other companies. And it looks Like Ackman has similar plans for Target.
Target has the "strongest operating management" in the retail industry, Ackman's Pershing Square Capital Management said in a regulatory filing Monday. But Ackman and Pershing say Target's stock is undervalued.
Pershing said it will push for talks with Target management about ways to boost the retailer's share price.
Target wouldn't comment on Ackman's purchase of the retailer's stock. But Target spokeswoman Susan Kahn indicated Ackman will get Target's ear.
"Consistent with our long history, we certainly welcome a dialogue with all members of the financial community and institutional investors," Kahn said.
So far, Ackman has not revealed what actions he believes Target could take to increase shareholder returns.
Target has been doing very well lately. Profits have climbed for six straight quarters. And the retailer's stock price is up about 45 percent over the past year.
Analysts speculate that Ackman might push Target to sell its credit card operations to boost profits fast. But Target's credit card business has been a big moneymaker of late.
Last year, credit card profits rose 53 percent to $693 million, and made up 15 percent of Target's earnings before taxes.
Analysts also suggest that Ackman may push Target to sell some of its real estate. That's what Ackman did with McDonald's.
Target owned about 1,300, or 85 percent, of its stores, as of February. The company leases other properties or owns buildings on leased land.
Some analysts wonder if there's much Target could do to improve its financial performance.
"This situation is somewhat different from past Ackman investments," Adrianne Shapira, an analyst with Goldman Sachs in New York, wrote in a note to investors.
"Fundamentals are strong, strategy is sound, shareholders have been rewarded, and management has little to apologize for," wrote Shapira.
Target shares shot up about 7 percent last week, just on the rumor that Ackman was buying a big stake in Target.
"Given the market's euphoric reaction to the rumored stake, we believe the next big move in the stock will hinge on management's response to Ackman's proposed strategy," wrote Shapira.