This excerpt taken from the TGT DEFA14A filed Apr 8, 2009.
TARGET REJECTED PERSHING SQUARES PROPOSED REAL ESTATE TRANSACTION AS SPECULATIVE AND RISKY
In its real estate proposal, Pershing Square asked Target to consider the IPO and subsequent spin-off of a separate publicly-traded real estate investment trust (REIT) that would own substantially all of the land currently owned by Target.
In November 2008, Target announced that after a comprehensive evaluation of various real estate structuring ideas outlined by Pershing Square, our Board had concluded that the potential value created, if any, was highly speculative and insufficient to merit pursuit of a transaction given the significant costs, strategic and operating risks, and loss of financial flexibility involved. The following factors were important in reaching this conclusion:
· By continuing to own substantially all of its real estate, Target enjoys meaningful financial and operating benefits, which the company is unwilling to lose without a demonstrably superior alternative.
· Ownership of the land under our stores and distribution centers allows Target to benefit from the value that we create on those sites, and provides necessary flexibility to make significant improvements to our stores to drive our strategy and protect our brand.
· From a financial perspective, ownership is cost-effective and assists Target in making favorable real estate acquisitions while also providing long-term stability, a necessary buffer for economic downturns.
· Pershing Squares real estate proposal would reduce Targets financial flexibility due to the conveyance of valuable assets to the REIT and the obligation to make annual lease payments of $1.4 billion, increasing every year for 75 years at the rate of inflation.
We believe that Pershing Squares real estate proposal is essentially a leveraged recapitalization that would expose Target to large and increasing lease payments, undermine its competitive position and jeopardize its long-term strategy. In our view, Pershing Squares proposal would decrease Targets operating and financial flexibility as well as expose Target to significant cost and risks.