NEW YORK, May 23 /PRNewswire/ -- William A. Ackman, founder of
Pershing Square Capital Management, L.P. and a Nominee for
Shareholder Choice, today sent the following letter to the editor
of Barron's newspaper: To the Editor: As a long-time Barron's
reader, I was disappointed to read Andrew Bary's recent article,
"Ackman's Target Campaign is Off-Target," which does your readers a
disservice for it fails to accurately characterize what our proxy
contest at Target is about, and is riddled with numerous materially
false and misleading statements. Pershing Square has been one of
Target's largest shareholders for more than two years. Over the
last two years, we have had a constructive and cordial dialogue
with Target management about various strategic initiatives which we
believe could create significant long-term shareholder value while
reducing the company's credit risk, increasing its access to
capital, and potentially improving the company's already strong
credit ratings. After two years of working with the company from
outside the boardroom, we felt that we could better assist the
company in creating more value if one representative from Pershing
Square joined the board and one mutually acceptable additional
director with relevant expertise were also added to the board.
Unfortunately, the nominating committee rejected me and every other
nominee we proposed for the board giving us no choice but to seek
shareholder support for adding new independent directors to the
board. The nominating committee to this day has refused to explain
the basis for rejecting me and the other independent directors we
proposed. While we think highly of Target management, Target's
board has become insular and unwilling to consider directors
outside of their intimate circle. According to Target's proxy
materials, the nominating committee did not even meet once in 2008,
but still collected their annual fees for committee membership. The
nominating committee would also not meet or interview the
independent director candidates we proposed. Insularity and
not-invented-here thinking have caused the demise of many of our
country's one-time greatest retailers; Sears and Kmart, being but
two of many such examples. We are working hard to make sure this
does not happen at Target. Target's board has consistently taken
steps to protect their incumbency that we believe are not in the
best interest of shareholders. Target's board has extended the
12-year term limits that were put in place by the company's
founding family (originally designed to ensure "fresh blood and new
perspectives") to 15 years and most recently 20 years. The most
recent term limit extension was done to accommodate Solomon
Trujillo, the recently deposed head of Telstra, an Australian
telecommunication company. We don't understand why the board
believes an additional three-year term for Mr. Trujillo on top of
the 15 years he has already served would add value to Target's
board compared to the numerous other board candidates with more
relevant experience and better and more relevant operating track
records than Mr. Trujillo. The board has also gone so far as to ask
shareholders in this election to limit the number of directors to
12 to reduce the potential for even one of our proposed nominees to
join the board. The company has also adopted a staggered board and
merged the Chairman and CEO roles including chairmanship of the
executive committee, governance approaches that Ken Dayton, one of
the founding family members opposed in his public pronouncements
about corporate governance more than 25 years ago. The board has
refused to allow shareholders to vote on a universal proxy card in
this election which would allow shareholders to choose which
nominees it wants on the board without being forced to attend the
shareholder meeting, which the company has located at a
construction site for a new store in Wisconsin, a location not
designed to be convenient to the vast majority of Target's owners.
As an alternative to a universal proxy card, we have offered to add
the incumbent directors to our proxy card to make choice easier for
shareholders. The company has yet to respond to our offer to do so.
In light of the nominating committee's rejection of all of our
proposed nominees, we had no choice but to run a proxy contest to
seek shareholder approval for new independent directors. Despite
the implications of Mr. Bary's article, this proxy contest is not a
platform for a change in strategy at Target. Rather, we have
identified five new independent directors, four of the five with no
affiliation with Pershing Square, so that shareholders have the
opportunity to choose among the nominees we have proposed and the
incumbents to determine who would best represent shareholder
interests on the board going forward. We have no coordinated plan
with these directors despite Mr. Bary's implication to the
contrary. Rather, we believe adding new independent directors with
CEO-level food retail, credit card, and real estate experience to
the board in addition to a top corporate governance expert and
major shareholder would materially improve the background,
experience and shareholder alignment of the board of directors and
their long-term oversight of the company and its management. The
current board has also failed to create a culture of stock
ownership at Target. Senior management had not purchased one share
of Target stock in the last five years until one day after we
launched this proxy contest. Rather than purchase stock in the
company, the board and management have sold more than $400 million
of stock in the last five years. The board owns less than 0.27% of
the company's stock and options despite their extended tenure on
the board and the annual restricted stock and option grants they
have received over the years. While Mr. Bary's article implies that
our candidates are somehow my cronies, I am the only Pershing
Square affiliate on our proposed slate. The other proposed nominees
have no affiliation with Pershing Square. Neither I nor Pershing
Square has any commitments, agreements, or understandings with any
of these proposed directors other than they have agreed to serve if
elected to the board, and we have agreed to indemnify them from any
costs they incur as a result of the proxy contest. The Nominees for
Shareholder Choice, as this slate is identified, include Jim
Donald, one the country's top grocery store executives who helped
Wal-Mart develop and grow their now-dominant superstore strategy;
Richard Vague, the co-founder of First USA and Juniper Financial,
one of the most successful credit card executives in the country;
Michael Ashner, a major owner/operator of real estate; and Ron
Gilson, one of the country's most important experts on corporate
governance with a joint appointment at Columbia and Stanford's law
and business schools. We believe that Mr. Bary's confusion about
what we are trying to achieve at this election has to do with the
fact that it is extremely rare for shareholders to have a choice of
more than one nominee for each board seat. In the most democratic
country in the world, so-called corporate "elections" for which
Target's is but one example, have become a farce. How can it even
be called an election if there is no alternative choice for each
seat on a board? In its previous uncontested elections, Target's
director nominees have been elected by a plurality which means that
directors who receive as little as one vote can be re-elected year
after year. This is particularly absurd in light of the fact that
brokers are allowed to vote a shareholder's stock in favor of
incumbent directors without their clients' consent. It is easy to
understand why so many of our major financial institutions have
failed because of inadequate board oversight when one considers
that effectively none of these directors had to compete to earn the
right to represent shareholders on these boards. What would our
country be like if voters had no alternative but to vote for only
one presidential candidate every four years, the mailman could vote
for the incumbent without your consent, the incumbent could spend
your money to advertise his campaign, and there were no term
limits? The Securities and Exchange Commission clearly also views
the current approach to corporate elections as problematic in light
of the SEC's recent proposal, announced last week for public
comment, to give major shareholders an opportunity to propose
alternative directors on a company's own proxy card if they hold 1%
of a company for a year or more. Unfortunately, this rule was not
yet in effect when we launched our own contest at Target, so we
have had to spend $10 million or more of our own money to give
shareholders a choice at this shareholder meeting. Next year, if
the SEC's proposed rule is in effect, you are likely to see
alternative independent directors proposed by shareholders at
hundreds of companies. This will cause boards to take nominating
new qualified directors seriously, and I guarantee you the quality
and independence of directors will rise. I also suspect that
Target's nominating committee will now begin to take its job
seriously and will likely meet more than the zero times it met in
2008. Don't be surprised to see Target's board and the rest of the
corporate lobby fight the SEC's proposal aggressively because it
threatens incumbency and their overly cozy and insular boards. Now
I will address some of Mr. Bary's specific assertions about the two
areas of strategic opportunity at Target about which we initially
met privately with management over the last two years. Our first
initiative was an attempt to convince the company to form a
partnership with a major financial institution and transfer the
credit and funding risk of its credit card receivables in exchange
for an ongoing earnings stream to compensate Target for acquiring
customers, assisting the bank partner in growing receivables,
marketing the program, running the call center and other elements
of the business where Target, as opposed to the partner bank, has a
competitive advantage. For years, Target's shareholders had pushed
the company to follow the lead of its principal competitors who
have all chosen a credit card partnership approach to their credit
card businesses. By September 2007, we were successful in finally
causing Target to take a look at alternatives for its credit card
operation. In May of 2008, the company took a partial step with its
credit card program in a transaction with J.P. Morgan which in
economic substance amounts to a non-recourse financing of 47% of
the company's receivables. Unfortunately, this transaction left
Target in a first-loss position with respect to effectively all of
its receivables and requires the company to continue to fund its
remaining receivables, an expensive, risky, and capital-consuming
proposition. We believe that Target's failure to implement a true
credit-risk-transfer partnership has cost the company hundreds of
millions of dollars in losses and billions of dollars in the
company's stock's resulting price decline. While we were
disappointed with the form of the J.P. Morgan transaction, we
viewed it as a step in the right direction that we hoped would
ultimately lead to a future, true partnership transaction which
will reduce more risk and free up more capital, contributing to an
increase in shareholder value. Our next initiative with Target was
to encourage the company to look at potential alternative ownership
structures for its real estate. Target owns a greater percentage of
its real estate than any other major retailer. In the article, Mr.
Bary characterizes our transaction as, "placing Target stores into
a real estate investment trust and leasing them back from the
REIT." He then goes on to quote Richard Sokolov, President of Simon
Property Group, "Transferring all of this real estate will
constrain Target's flexibility to make renovations, expansions and
enhancements that are part of the ongoing evolution of any
retailer." In fact, we never proposed that Target consider
transferring its stores to a REIT. Rather, we proposed that Target
would continue to own its stores while contributing the land under
its stores to a REIT. This is an extremely important and material
difference. The benefits of our proposed structure is that there
would be no restrictions whatsoever on Target making "renovations,
expansions and enhancements that are part of the ongoing evolutions
of any retailer." In fact, there would be no covenants at all other
than the requirement that Target make semi-annual rent payments.
Target already leases the land for 10% of its stores. Our proposed
transaction would simply expand this percentage to nearly all of
Target's stores. Because a ground lessor, in this case the REIT,
would have the security of Target's guarantee on the lease plus
approximately $20 billion of additional security from the buildings
on the land (which would be transferred to the REIT in the event of
a default), the REIT would have an extremely secure income stream.
As Mr. Sokolov as well as other sophisticated real estate investors
should know, ground leases trade at extremely low cap rates because
of the security and the inflation-protected nature of ground lease
rental streams. Big box retail ground leases even for inferior
credits to Target trade at 6.5% and lower cap rates. We believe a
1,400 property cross-collateralized pool of 75-year ground leases
guaranteed by Target would likely be valued at an even lower cap
rate or higher multiple of cash flow than a one-off ground lease
transaction to an inferior tenant. We also designed our proposed
REIT transaction so that it would be ratings neutral or potentially
even enhance Target's already strong credit ratings. In our revised
transaction which we made public in November of last year, Target
would sell a 19.9% interest in the REIT and pay down debt with the
approximate $5 billion of IPO proceeds. Next, the company would
complete a credit card partnership transaction and take the $8
billion or so from the sale of its receivables and pay down debt.
Target would continue to own 80% of the REIT until such time as the
company's free cash flow reduced debt to $5 billion, less than one
turn (one times EBITDA) in leverage. Only at this time would the
company spin off the remaining interest in the land REIT to
shareholders. In our proposed transaction, Target's ongoing
dividends would now be paid by the REIT, at an approximate
three-fold higher level than the current dividend rate. Target's
ground rent expense would be tax deductible and future land
acquisitions would be funded by the REIT. The company would retain
its stores which it could continue to depreciate for tax purposes.
As a result of these features, Target's after-tax, after-cap ex,
and after-dividend free cash flow would be materially higher than
it is presently and its outstanding debt would decline by
approximately $13 billion. With only $5 billion of debt (which
could be repaid in approximately two years) and a 75-year ground
lease with no covenants, Target in our view would be in a
materially superior financial position than it is today. This would
not only benefit Target but also the REIT because the stronger
Target's credit quality, the more valuable the REIT would be. In
his article, Mr. Bary makes the unsupported statement that our
proposed REIT would trade at approximately 10 times cash flow.
While the REIT universe has been under pressure over the last year
because of declining occupancy, declining rents, tenant bankruptcy
risk, large capital expenditure requirements requiring funding, and
most REITs' inability to refinance debts as they come due, Simon
Property Group continues to trade at approximately a 7.5% cap rate,
or approximately 15 times cash flow. Our proposed Target REIT would
have no debt, a strong investment grade tenant, little if any
maintenance cap ex (land leased to Target does not need to be
maintained), and no occupancy risk, elements which we believe would
cause this REIT to trade at a material higher valuation than the 15
times multiple awarded to Simon Property Group. That said, our
issue with Target's board was not that they rejected our REIT
proposal, but rather that they would not authorize the company's
advisors to work to develop a superior alternative to what we
proposed. By limiting Goldman Sachs to a narrow review of our
proposed transactions, Target and its shareholders were deprived of
the opportunity to consider other potentially superior
alternatives. For years, despite consistent advice from
shareholders to complete a credit card partnership, Target's board
refused to consider these alternatives. The company is now saying
it completed an inferior credit card transaction only because the
market deteriorated by the time company executed its transaction.
We hope Target does not make a similar error with respect to other
potential strategic opportunities because of their unwillingness to
even consider alternatives. Please publish appropriate corrections
to Mr. Bary's article. Thank you. Sincerely, William A. Ackman, A
Nominee for Shareholder Choice Vote Now - Vote Today The date of
Target's Annual Meeting is this coming Thursday, May 28, 2009.
Target shareholders should vote on the Internet (for instructions,
please go to http://www.tgttownhall.com/), by telephone, or by
signing, dating and returning the GOLD proxy card as soon as
possible to vote FOR the Nominees for Shareholder Choice and
AGAINST Target's proposal to limit the board to 12 directors. If
you have already voted on the white proxy card, you can change your
vote by submitting a later dated GOLD proxy card. If you have
submitted both a white and GOLD proxy card, only your latest
arriving proxy card will count, so please vote again on the GOLD
proxy card to ensure your vote is counted accurately. For more
information on how to vote, as well as other proxy materials,
please visit http://www.tgttownhall.com/ or call Pershing Square
Capital Management, L.P.'s proxy solicitor, D. F. King & Co.,
Inc., at 1 (800) 290-6427. About Pershing Square Capital
Management, L.P. Pershing Square Capital Management, L.P., based in
New York City, is an SEC registered investment advisor to private
investment funds. Pershing Square manages funds that are in the
business of trading - buying and selling - securities and other
financial instruments. Funds managed by Pershing Square have long
positions in stock, options and other financial instruments tied to
the performance of Target Corporation's stock. Pershing Square has
and in the future may increase, decrease, dispose of, or change the
form of its investment in Target Corporation for any or no reason.
Additional Information In connection with Target's 2009 Annual
Meeting of Shareholders, Pershing Square Capital Management, L.P.
and certain of its affiliates (collectively, "Pershing Square")
have filed a definitive proxy statement on Schedule 14A with the
Securities and Exchange Commission (the "SEC") containing
information about the solicitation of proxies for use at the 2009
Annual Meeting of Shareholders of Target Corporation. The
definitive proxy statement and the GOLD proxy card were first
disseminated to shareholders of Target Corporation on or about May
2, 2009. SHAREHOLDERS OF TARGET ARE URGED TO READ THE PROXY
STATEMENT CAREFULLY BECAUSE IT CONTAINS IMPORTANT INFORMATION. The
definitive proxy statement and other relevant documents relating to
the solicitation of proxies by Pershing Square are available at no
charge on the SEC's website at http://www.sec.gov/. Shareholders
can also obtain free copies of the definitive proxy statement and
other relevant documents at http://www.tgttownhall.com/ or by
calling Pershing Square's proxy solicitor, D. F. King & Co.,
Inc., at 1 (800) 290-6427. Pershing Square and certain of its
members and employees and Michael L. Ashner, James L. Donald,
Ronald J. Gilson and Richard W. Vague (collectively, the
"Participants") are deemed to be participants in the solicitation
of proxies with respect to Pershing Square's nominees. Detailed
information regarding the names, affiliations and interests of the
Participants, including by security ownership or otherwise, is
available in Pershing Square's definitive proxy statement.
Cautionary Statement Regarding Forward-Looking Statements This
letter contains forward-looking statements. All statements
contained in this letter that are not clearly historical in nature
or that necessarily depend on future events are forward-looking,
and the words "anticipate," "believe," "expect," "estimate,"
"plan," and similar expressions are generally intended to identify
forward-looking statements. These statements are based on current
expectations of Pershing Square and currently available
information. They are not guarantees of future performance, involve
certain risks and uncertainties that are difficult to predict and
are based upon assumptions as to future events that may not prove
to be accurate. Pershing Square does not assume any obligation to
update any forward-looking statements contained in this letter.
Contact: Global Strategy Group Julie Wood (917) 282-5840
DATASOURCE: Pershing Square Capital Management, L.P. CONTACT: Julie
Wood, Global Strategy Group, +1-917-282-5840 Web Site:
http://www.tgttownhall.com/
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