Activist
hedge fund manager William Ackman of Pershing Square Capital Management
LP appears to have had a mixed 2008, which is more than can be said for
most of his peers. In 2008 he had some losses, which he can thank to
investments in retailers, but he also had some winning bets, including
an unlikely one.
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The often vocal activist did not have a good word for investors about
his fund's Target Corp. holding, as the Pershing fund that invests in
the Minneapolis-based retail giant fell 68% in 2008, according to a
letter to investors, as reported late Monday by Bloomberg. The fund's
decline eclipsed the retailer's share price loss of about 31% over the
past year.
Pershing in the summer of 2007 raised a $2 billion
special purpose vehicle in nine days to invest in a corporation without
having to inform investors of the target or plan. That target turned
out to be Target. Pershing owns about 9.5% of Target's shares through
the special purpose vehicle. Bloomberg reported that the vehicle's 2008
loss followed a 43% decline in 2007, adding that the fund is structured
so its returns double Target's stock movement.
The hits Pershing
took on Target were not for a lack of trying to boost shares. Bowing to
pressure from Pershing, Target in May agreed to sell an interest in its
credit card business to J.P. Morgan Chase & Co. for $3.6 billion.
Its shares barely budged following the news, closing up less that 0.5%
on May 6 at $53.44. Target's shares finished 2008 at $34.53.
Ackman
continues to soldier on to try to salvage his Target investment. On
Nov. 19, he released a 79-page proposal that called for Target to form
a REIT that would own the land under its owned stores and spin off 20%
of that REIT in an initial public offering. He predicted that a REIT
spinoff could help unlock the value of Target's real estate and lift
its shares to about $79 by 2010. Shareholders did not seem to buy into
Ackman's plan as Target's stock skidded about 14.5% on Nov. 19.
Despite the bad news at Target -- and the even worse news
at Borders Group Inc., another Pershing investment -- the retail world
has not been all bad for the firm. In fact in an odd twist, the firm
made a killing on its investment in Longs Drug Stores Corp., which was
sold in late October to CVS Caremark Corp.
According to an Aug. 5 13D
filing to the SEC, Pershing acquired a roughly 8.8% stake in Longs in
common stock between the end of June and the end of July, paying
between $40.47 and $45.92 per share. He increased his stake to 23.6%
through total return swap arrangements, which allowed him to boost his
returns on his initial 8.8% investment of about $136.6 million. Ackman
opposed the acquisition, saying it undervalued Longs, and Walgreens Co.
stepped in in September with a competing $75 per share bid. When all
was said and done, the CVS $71.50 per share acquisition was completed,
and Ackman, despite his opposition, walked away with about $660
million.
Longs worked out for Ackman as did his short positions.
Two of his more highly publicized short positions, battered bond
insurers MBIA Inc. and Ambac Financial Group Inc., fell about 79% and
95% in 2008, respectively. Details on his positions in these two companies could not
be ascertained. - Michael Rudnick
Comments
Investors in Pershing Square should be concerned about Ackman closing out this fund like he did with his first fund - Gotham Partners - at huge losses to investors.