Ackman Case Study Summary

960 Words 4 Pages
In the summer of 2007, William Ackman Attained 9.6% of Target’s outstanding shares. As an activist shareholder, William Ackman had a goal to work with Target’s management and bring up their share price while also working to get on the board of directors. There were three critical changes Ackman wanted to bring about Target’s operations: selling Target 's credit card business, increasing its stock buyback program, and selling a portion of their real estate holdings. With those three changes, Ackman believed from his past experiences, he could help Target increase their valuation.
Credit Card Sales
Target initially claimed that its credit card business continued to be highly profitable. While accounts receivables that were due by over 60 days
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Within three years, Target claimed back 90.7 million shares with a total cost of $4.6 billion. In addition, they announced to continue repurchasing such stocks totaling $10 billion. After acquiring $4.84 billion of the stocks under their new plan, Target’s management announced the decision to suspend temporarily any further stocks due to their current business condition. This decision ultimately was made to decrease the amount of cash outflow. Shareholders such as Ackman thought that Target should continue such program- ultimately utilizing their cash for investing.
By going along with Ackman, and utilizing cash for such investment, Target’s cash flow would be affected in that they would continue to have a higher value of negative cash flow related to investment. In 2008, the negative cash flow from investment relating to repurchase of stock was at $2,815 million. This value could be higher if Target continued to purchase more stocks in December. Otherwise, in 2009, the company would continue to have negative cash flow relating to repurchase of stocks since they would be continuing to purchase outstanding shares of stock. Real
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While such analysts claimed Target of owning 85% of such retail stores. Analysts claimed that if Target were to sell such retail facilities, they could earn $28 Billion in which could be used to buy back 60% of outstanding shares. This would benefit such shareholders in that the reduction in such outstanding shares would increasing earnings per share. When Ackman did further analysis, his calculations showed that Target was closer to owning 95% of their retail stores, and selling such retail space would enable them to earn $42 billion- roughly 90% of such outstanding shares. Ackman believed that such investment in PP&E gave no further value to the company’s stock and he continued to pressure management for selling such real estate. He then went about proposing a plan to put Target’s real estate into a real estate investment trust, and then lease back properties with a 75 year lease. In addition, the plan entailed selling 20% of the trust for around $5 billion to help pay debt. The least expense would total $1.4 billion per year, and subsequently rising after depending on inflation. Ackman believed his plan would help increase share prices claiming the plan would additionally give financial and tax benefits. Target rejected such proposal again, claiming “the potential to create value as highly speculative”. In addition, Target understood that

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