Pershing Square has taken it on the chin with its Target stake. The retailer’s announcement on Wednesday that it’s suspending its credit card auction is yet another upper cut.
  
Mind you, Pershing founder William Ackman is one of the best known activist investors out there, having made a boat load of money shorting bond insurers and shaking up companies like Wendy’s. And he is said to be approaching his Target investment with a long-term view. (What exactly long-term means to an activist hedge fund is anyone’s guess? Two years, three years? Twelve months?)   
    
But so far, his stake in Target has turned out to be a dog, long-term view or not.      
    
For starters, Ackman started scooping up shares when they were around $59 per share. They’re at around $51 now. 
    
Second, Ackman wanted Target to sell it’s credit card portfolio, which the company really wanted to keep. The business was a cash cow, and had generated big profits for the company.  Ackman wanted greater focus on the capital structure.
    
In a bow to the activist at their doorstep, Target agreed to put its card business on the auction block in September, two months after disclosure of Ackman’s stake.
    
Tough timing.
    
The credit crunch sunk its teeth into the markets by late July, and by the time Target put the business up for sale, private equity buyers were out of the deal picture, thanks in part to the division’s $7 billion price tag.
    
The thought among some private equity investors was that no matter what price they offered, even in the best of times, GE would likely outbid it. Indeed, GE has a deep history in buying up credit card portfolios. But it apparently isn’t interested in Target.
    
So Target has decided to keep its card business for now, promising to revisit the issue in the first quarter.
    
Ackman, no stranger to publicly condemning companies not doing enough for their shareholders, spoke highly of Target’s management and strategy at a recent hedge fund conference. Huh? Wasn’t he at all ticked at the lagging sale process? The stock price?
    
Perhaps Ackman has come to realize that sometimes, you have to pick your battles. The consumer is not in good shape right now, the large-cap private equity M&A market is dead, and at this point it’s not even clear if selling the card business is the right thing for the company. Plus, he’s in attack mode right now on the bond insurers, mainly MBIA.
    
“We are not surprised by the news,” said Joseph Feldman, a retail analyst with Telsey Advisory Group, of the delay. “I think if it were not for Bill Ackman, they probably never would be considering (the sale) as publicly as they are.”
    
Red Gillen, senior analyst with Celent, a Boston-based financial research and consulting firm had the following take: “Given the current business environment of increased consumer credit write-offs and delinquencies, Target suitors may be few and far between.”
    
Morgan Stanley M&A banker Rob Kindler said in March that you can’t beat an activist. Invite them in, pull up a chair. Don’t fight them. Kindler said that in April, when if an activist told a company to sell something, there were a dozen private equity firms ready and willing to buy it. Times have changed.
    
So while Ackman may be inclined to hold onto Target for the long haul, his stake has hardly emulated the quick and profitable action by his previous, ahem, targets.

(Photo. William Ackman)