Archive for October, 2008

Ackman proposes Target spin off property company (AP)

Wednesday, October 29th, 2008 | Finance News

NEW YORK – A major shareholder in Target Corp. pitched a plan to Wall Street on Wednesday that would spin off the discount retailer's real estate holdings as a separate entity as a way to increase the value of the company and its shares.

Separating the real estate into a publicly traded real estate investment trust would create long-lasting value for the retailer, investor William Ackman told several hundred people — including hedge fund managers and investment analysts — at a meeting in Manhattan.

Ackman runs hedge fund Pershing Square Capital Management, which owns just under 10 percent of Target's common stock and has long been pushing the company to do more with its assets. Target owns most of its buildings as well as the land underneath, he said.

Under his proposal, the new tax-free spinoff would own the land under Target's stores, while the retailer would retain ownership of the buildings and would rent the land back under a 75-year lease on attractive terms.

"There is a very large real estate company, one of the largest in the country, inside the business," Ackman said during the presentation, which was also webcast.

Target issued a statement in response that it has been evaluating similar proposals by Pershing, but has "serious concerns" about the potential transaction. It believes the proposed structure would hurt its debt rating, borrowing costs and liquidity, especially given the current tightness in the credit market.

Ackman told those at the meeting that he approached Target's board with the proposal in May and had another meeting in September. Target had seen most components of the plan before it was shared with the public Wednesday — a move he said he made to create a dialogue among the company's shareholders.

Under the proposal, the REIT would be the exclusive land developer for Target for two years, and after that be the preferred vendor. Target would be able to make any capital improvements to its buildings — such as increasing fresh food sections, expanding square footage — because it would maintain control of the buildings.

The spun-off REIT would be the 62nd largest company in S&P 500 if it existed, Ackman said. It would be the largest REIT in the country.

Ackman said such a transaction could send Target's shares up from $40 to $70 with a 12-month target of $83 by increasing the company's value.

He also noted that outsourcing capital requirements such as land excavation, sewage systems and other capital needs to the new entity would increase Target's cash flow. On average, Ackman estimates that it costs Target approximately $100 per square foot to procure and develop land for its stores. In 2009, that's expected to amount to about $1.1 billion.

Pershing, which also has a stake in bookseller Borders Group Inc., earlier this year pressured Target to make a financial move with its assets. Target ended up selling 47 percent of its credit card receivables to JPMorgan Chase for $3.6 billion in May.

The move assumes Target will sell the rest of its credit-card portfolio in or by 2009.

As consumers cut back amid a weakening economic environment, Target Corp. has fared worse than competitors such as Wal-Mart Stores Inc., which has focused more on its low-prices for necessities like groceries. The Minneapolis company said last week that it is further tightening finance terms for its card holders — even those with good standing. It may also become even more stringent if credit conditions keep deteriorating.

Target shares rose $2.21, or 5.7 percent, to close at $40.72.

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AP Business Writer Anne D'Innocenzio contributed to this report.

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Visa Q4 adj net tops Street; cuts revenue growth view (Reuters)

Wednesday, October 29th, 2008 | Finance News

NEW YORK (Reuters) –
Visa Inc (V.N), the world's largest credit card network, cut its annual revenue growth target, citing a challenging economy, sending its shares down more than 2 percent in after-hours trade.

The company lowered its financial outlook for annual net revenue growth to the lower end of the 11 percent to 15 percent range it previously estimated.

"Revenue growth may be somewhat challenged in 2010 given the current economic environment in the U.S. and around the globe," Visa said in a statement.

The outlook overshadowed higher-than-expected adjusted quarterly profit as international processing revenue rose.

Excluding litigation, restructuring and other expenses, the company said its adjusted net income for the fiscal fourth quarter ended September 30 was $448 million, or 58 cents per Class A share, compared with pro forma income of $196 million a year earlier, when the company was privately held.

Analysts forecast, on average, adjusted earnings of 56 cents, according to Reuters Estimates.

The company affirmed its targets of an annual adjusted operating margin in the mid-to-high 40 percent range, annual adjusted diluted Class A common earnings per share growth of 20 percent or more, and annual free cash flow in excess of $1 billion.

Visa posted a quarterly net loss of $356 million, against a net loss of $1.65 billion a year ago, hit by a litigation reserve.

Net operating revenue rose 17 percent to $1.7 billion.

Visa said payments volume grew 15 percent to $699 billion, boosted by growth in the U.S., Asia and Latin America, among other places.

Visa's stock fell 2.4 percent in after-hours trade to $49.50, after closing at $50.69 during the regular session on the New York Stock Exchange. The company's shares have fallen around 10 percent since its debut on the New York Stock Exchange in March.

(Reporting by Juan Lagorio, editing by Bernard Orr)

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Dow and S&P 500 fall on profit worry, GE’s outlook (Reuters)

Wednesday, October 29th, 2008 | Finance News

NEW YORK (Reuters) –
Stocks fell on Wednesday as a big rally faltered in the last minutes of trading on worry about the weakening corporate profit picture after a news report raised questions about General Electric's earnings outlook.

In a move that has been the trademark of the market's volatility ever since Lehman Brothers' bankruptcy filing in mid-September, the Dow plunged more than 300 points in the last 12 minutes, dashing prospects for the first back-to-back gains in a month.

Aside from the GE news, reported by Dow Jones with less than 15 minutes left in the session, traders said hedge funds and mutual funds were dumping stocks to raise cash to repay clients and lenders, while other investors were eager to lock in some profit from Tuesday's huge rally.

General Electric's stock fell 4 percent in the last minutes of trading, only to end down 1.5 percent at $19.20.

Dow Jones reported that General Electric's Chief Executive Jeffrey Immelt said GE aims at keeping 2009 profits at the same level as this year, even if revenue drops 10 percent to 15 percent.

But after the closing bell, GE told CNBC that the CEO's comments were taken out of context and that Immelt gave no new forecast. GE owns CNBC.

"People are blaming Immelt for this last-minute drop," said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago. "But it's also what we've been seeing for the past few weeks -- the end-of-day hedge and mutual fund liquidations."

Trading was volatile after the Federal Reserve slashed interest rates by half a percentage point, the latest in the series of moves to keep the credit crisis from triggering a deep recession. Some traders had been speculating there would be a deeper cut.

The Dow Jones industrial average fell 74.16 points, or 0.82 percent, to close at 8,990.96. The Standard & Poor's 500 Index declined 10.42 points, or 1.11 percent, to 930.09. But the Nasdaq Composite Index rose 7.74 points, or 0.47 percent, to 1,657.21.

In contrast, at about 3:30 p.m. EDT, all three indexes were rallying near session highs: The Dow was up over 230 points, or about 2.6 percent, at 9,299 and the S&P 500 was up over 20 points, or about 2.6 percent, at 964, while the Nasdaq was up about 46 points, or about 2.8 percent, at 1,695.

By 3:58 p.m., the rally was over, with both the Dow and the S&P turning negative.

Health-care company Johnson & Johnson, down 4.1 percent at $61.53, was the top drag on the Dow after J.P. Morgan Securities downgraded the stock.

But there were some bright spots. The costs for banks to borrow dollars from each other over three months fell for a 14th straight day, suggesting that confidence was returning in the credit markets.

GM shares rose 8.2 percent to $6.76 after sources familiar with the matter told Reuters that General Motors and private equity firm Cerberus Capital Management have resolved "major issues" in a proposed GM-Chrysler merger.

Shares of energy companies headed higher as U.S. front-month crude gained $4.77 to settle at $67.50 a barrel. An S&P index of energy stocks rose 2.26 percent.

Boeing climbed 1.8 percent to $49.80, making it one of the Dow's top advancers, after government data showed surging demand for aircraft drove an unexpected increase in September for new orders for long-lasting manufactured goods, also known as durable goods.

The Nasdaq got its biggest lift from Apple Inc, up 4.6 percent at $104.55, after a Sanford Bernstein analyst said the maker of iPhones, Mac computers and iPods is in an excellent position to launch a "substantial" stock-buyback program.

Trading was moderate on the New York Stock Exchange, with about 1.62 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.79 billion shares traded, above last year's daily average of 2.17 billion.

Advancing stocks outnumbered declining ones on the NYSE by nearly 2 to 1 and on the Nasdaq, by about 4 to 3.

(Reporting by Kristina Cooke; Editing by Jan Paschal)

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