Does Ackman and General Growth Properties Have Anything to Do with Target?

What is the plan here? We know General Growth (GGP) is in a tight spot. But, with Citi (C) taking a 5% stake, the debt is all but assured to be refinanced. Some thoughts at the end, does it have to do with Target (TGT)?

Hedge fund manager William Ackman’s Pershing Square Capital Management LP disclosed that it owns a 7.5 percent stake in General Growth Properties. Pershing Square directly owns a total of 20 million shares in the REIT. The company also said it owned 48.5 million shares through total return swaps, bringing its economic interest in the company to 68.6 million shares (over 18%).

SEC Filing

The Subject Shares are beneficially owned by the Reporting Persons. Furthermore, the Reporting Persons entered into Swaps for the benefit of Pershing Square, L.P. (the “PSLP Swaps”), Pershing Square II, L.P. (the “PSII Swaps”) and Pershing Square International, Ltd (the “PSIL Swaps”, collectively with the PSLP Swaps and PSII Swaps, the “Pershing Square Swaps”) on the dates described on Exhibit 99.1. The Pershing Square Swaps constitute economic exposure to approximately 18.1% notional outstanding Common Shares in the aggregate, have reference prices ranging from $0.49 to $1.58 and expire on the dates described on Exhibit 99.1.

Under the terms of the Pershing Square Swaps (i) the applicable Pershing Square Fund will be obligated to pay to the counterparty any negative price performance of the notional number of Common Shares subject to the applicable Pershing Square Swap as of the expiration date of such Swap, plus interest at the rates set forth in the applicable contracts, and (ii) the counterparty will be obligated to pay to the applicable Pershing Square Fund any positive price performance of the notional number of Common Shares subject to the applicable Pershing Square Swap as of the expiration date of the Swaps. With regard to the Pershing Square Swaps, any dividends received by the counterparty on such notional Common Shares will be paid to the applicable Pershing Square Fund during the term of the Swap. All balances will be cash settled at the expiration date of the Swaps. The Pershing Square Funds’ third party counterparties for the Pershing Square Swaps include entities related to BNP Paribas, Citibank, Morgan Stanley and UBS.

Here is the trading data (Click to enlarge):
Now, if we really want to go further with this we could look at Target. The buying here coincided with Target's lukewarm response to Ackman's Target REIT plan. It picked up heavily after his second proposal to the company.

After Target dismissed it, Ackman added over 25 million shares directly and another 30 million through the swaps. I rarely find too much pure coincidence in timing like this.

What then? Perhaps he could offer up GGP to Target (TIP REIT) to expand its presence? Perhaps off to have GGP run TIP REIT to take the burden of running it off Target execs hands? After all, it was one of the objections Target put forward, albeit a very weak one.

Perhaps placing them into a JV to share the running and vastly expand the footprint of them...it would also give Target access to cheap land to expand.

Who knows.......something is up though...


Disclosure: None

Comments

[Druff:]

Around 75% of the dollar value of his $2B original investment was purely in options, with ~90% in the form of derivatives. If he had bought entirely stock he'd have paid $4.9B but is able to show the same amount of "ownership" with only $2B. All but 1 batch of options have expiration dates in b/w October 2008 and April 2009. From what i can see he bought all 79.2M options on 8 distinct trading dates.

Watch out dude. By April, his position in TGT will have blown up completely due to the options expiring out of the money. He is now just doubling down.

2008 Dec 11 09:24 AM

[s_m_p:]

One correction (I think) at least based on my understanding. Citigroup was a counterparty to the cash settled equity swaps. Therefore, Citigroup's equity stake actually isn't necessarily a vote of confidence in General Growth. I believe it is more accurately seen as a hedge on their equity swaps with Ackerman.

2008 Dec 11 05:21 PM

[s_m_p:]

I only skimmed it earlier today but I think the 13d he filed specifically stated that he was trading and investing in the underlying debt. While it may have Target connection, it seems more likely that he is posititioning himself to help solve their "short term" liquidity needs (we'll see, of course, how short term they end up being) and get the equity upside.

2008 Dec 11 05:35 PM

[Montegrl:]

I hadnt thought about a possible Target connection. Details of which would be a little above my understanding but certainly an interesting notion.

2008 Dec 14 03:17 AM