Tuesday, October 28, 2008

When Will They Ever Learn?
A hedge fund, Pershing Square, is interested in buying Target. Here is a quote from the Bloomberg article:
Pershing, which controls almost 10 percent of Target's stock, will discuss a deal that ``will be of particular interest to investors and analysts focused on retail, real estate, fixed income and credit,'' according to a statement today.

Ackman (runs Pershing Square) has pressed Target executives to buy back shares, sell the company's credit-card unit and extract more value from its real estate holdings. Target announced a $10 billion share repurchase program in November and sold almost half of its credit-card portfolio to JPMorgan Chase & Co. for $3.6 billion earlier this year.

Part of me is glad that some form of business is happening in this market. But I look at private equity and hedge fund retail forays and it has not been pretty. Mervyn's and Linen & Things are going dark, and I suspect other once-public retailers will follow suit. I just don't see the benefit of financial engineering the retailers. Retail success comes down to good management and good locations that can drive strong sales, not balance sheet reconfiguring. Target competes well with Wal-Mart. I'd be scared if I was a landlord and had Target as a tenant.

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