Slide 1: The Nominees for Shareholder Choice
The Nominees for Shareholder Choice May 7, 2009 Pershing Square Capital Management, L.P.
Slide 2: Disclaimer
In connection with the 2009 Annual Meeting of Shareholders of Target Corporation ("Target"), Pershing Square Capital Management, L.P. and certain of its affiliates (collectively, "Pershing Square") filed a definitive proxy statement on Schedule 14A with the Securities and Exchange Commission (the "S
Slide 3: Disclaimer (cont'd)
Pershing Square has not sought or obtained consent from any third party to the use of previously published information as proxy soliciting material. Any such statements or information should not be viewed as indicating the support of such third party for the views expressed herein. No warranty is ma
Slide 4: Agenda
3 Agenda Situation Overview The Nominees for Shareholder Choice Food Retailing: Jim Donald Credit Cards: Richard Vague Real Estate: Michael Ashner Shareholder Rights: Bill Ackman Corporate Governance: Ron Gilson Target: Avoiding the Real Issues Corporate Elections and Shareholder Choice
Slide 5: Situation Overview
Situation Overview
Slide 6: Pershing Square is a long-term Target shareholder
Pershing Square 5 Pershing Square is a long-term Target shareholder Pershing Square initiated its investment in Target in April 2007 We are the third largest beneficial owner of Target We have ownership of 7.8% of Target ~$1 billion of common stock (3.3% of the company) ~$280 million in stock option
Slide 7: Situation Overview
6 Situation Overview On March 17, 2009, Pershing Square announced the nomination of five independent directors for the open seats on Target's board We did so principally because we believe that the incumbent Target board lacks: Sufficient relevant experience Significant shareholder representation Ou
Slide 8: Target: Retail, Credit Cards, and Real Estate
7 Target: Retail, Credit Cards, and Real Estate Credit Card Business Real Estate Assets Over 200 million sq ft of retail real estate TARGET Retail Business
Slide 9: Target Board Lacks Sufficient Relevant Experience
Target Board Lacks Sufficient Relevant Experience Credit Card Business Real Estate Assets Over 200 million sq ft of retail real estate Retail Business Target's Current Board (1) NO Retail senior operating experience NO Real Estate senior operating experience NO Credit Card senior operating experienc
Slide 10: Target's Independent Directors
Target's Independent Directors Incumbent Nominees 9 The average tenure of the independent directors is approximately 9 years. The average tenure of the incumbent nominees is approximately 10 years
Slide 11: Board Lacks Significant Shareholder Representation
Board Lacks Significant Shareholder Representation Target's board lacks significant shareholder representation, owning less than 0.3% of the company. Independent directors own less than 0.1% of the company Board Members 10 Source: Target proxy
Slide 12: We believe that the deficit of relevant experience and the lack of significant shareholder
11 We believe that the deficit of relevant experience and the lack of significant shareholder representation on Target's board has contributed to the company's material underperformance during this recession
Slide 13: Underperformance Relative to Wal-Mart
Underperformance Relative to Wal-Mart Target Down 51% Wal-Mart Up 11% 12 From the beginning of the fourth quarter of 2007 to the day prior to our announcement of our proposed slate, Target stock declined by 51%. Over the same period, the stock of Wal-Mart, Target's principal competitor, appreciated
Slide 14: Underperformance in Same Store Sales Growth
Target Wal-Mart US 13 Source: Company filings Underperformance in Same Store Sales Growth Year-over-Year Growth Rate of Quarterly Same Store Sales We believe that Target's substantial negative returns to its shareholders are reflective of its operating underperformance compared with Wal-Mart
Slide 15: Underperformance in Earnings Per Share Growth
Wal-Mart Target Year-over-Year Growth Rate of Reported Quarterly EPS from Continuing Operations 14 Source: Company filings Underperformance in Earnings Per Share Growth Since Q4 2007, Target's earnings per share growth has been significantly less than Wal-Mart's earnings per share growth
Slide 16: Target's Credit Card Business: Poor Performance
Target's Credit Card Business: Poor Performance 15 Target's credit card segment has performed poorly, with credit card operating profits declining 65% in 2008, predominantly, in our view, due to bad underwriting decisions amplified by increased credit risk Credit Card EBIT Credit Card EBIT as a % of
Slide 17: Wal-Mart's Board Has Deep, Relevant Experience
Wal-Mart's Board Has Deep, Relevant Experience Real Estate Wal-Mart owns a lower percentage of its stores than Target Retail Business Current Board Allen Questrom, former CEO of JCPenney, Neiman Marcus, Federated Department Stores Roger Corbett, retired CEO of Woolworths, Australia's leading retail
Slide 18: Questions to Ask
Questions to Ask Why doesn't Target have board members with CEO-level experience in retail, credit cards, and real estate? Isn't the board accountable for the poor results of the credit card segment, particularly when Pershing Square urged Target to reduce credit risk in the business? Why is the ave
Slide 19: With a greater degree of relevant experience and improved shareholder representation, we believe Target's
18 With a greater degree of relevant experience and improved shareholder representation, we believe Target's board can prevent future missteps, assist in strategic decision-making, and create greater shareholder value over the long term The Nominees for Shareholder Choice have, in our view, the rele
Slide 20: The Nominees for Shareholder Choice
The Nominees for Shareholder Choice 19 (1) Consisting of 3.3% in shares of common stock and 4.5% in stock options.
Slide 21: Nominees Are Entirely Independent
20 Nominees Are Entirely Independent Jim Donald, Richard Vague, Michael Ashner, and Ron Gilson are independent nominees with no commercial relationships with Target or Pershing Square Each is a highly regarded leader in his area of expertise Each has his own unique perspective, background, and ideas
Slide 22: Vote For Management and Improving the Board
Vote For Management and Improving the Board Voting for the Nominees For Shareholder Choice is NOT a vote against management We are supportive of management Our goal is to improve Target's board Even with the best management team, a company must have directors who can draw upon their own experience t
Slide 23: Vote for the Nominees for Shareholder Choice
22 We strongly believe that the Nominees for Shareholder Choice are better prepared than the incumbent slate to help management navigate through a challenging economic environment that may last for several years Vote for the Nominees for Shareholder Choice
Slide 24: The Nominees for Shareholder Choice Gold Proxy Card
The Nominees for Shareholder Choice Gold Proxy Card
Slide 25: Food Retailing: Jim Donald
Food Retailing: Jim Donald
Slide 26: Food Retailing is A Critical Growth Initiative
Food Retailing is A Critical Growth Initiative Food retailing represents a critical strategic growth initiative for Target. We and the company believe that an expanded food presence can help Target increase the frequency of visits from its customers and generate higher and more predictable sales 25
Slide 27: Food: Critical Strategic Growth Initiative
Food: Critical Strategic Growth Initiative 26 "We continue to focus on food as a priority and as we've talked in the past, each iteration of our prototype and remodels we have expanded the footprint in the store and our commitment to the business in general. And if you go back five or seven years ag
Slide 28: Food: Critical Strategic Growth Initiative (cont'd)
Food: Critical Strategic Growth Initiative (cont'd) "We also continue to invest in our food offering in recognition of its importance in driving greater frequency, increasing guest loyalty, and making Target a preferred shopping destination." Gregg Steinhafel, CEO Target 4Q'08 Earnings Call, 2/24/09
Slide 29: Increasing Food Could Help Sales Significantly
Increasing Food Could Help Sales Significantly Target Wal-Mart US 28 Source: Company filings In our view, Target's more limited food offering partially explains why Target's same-store-sales growth rate has been considerably weaker than Wal-Mart's in every quarter since Q4 2007 Year-over-Year Growth
Slide 30: Jim Donald: Food Retailing Leader
Jim Donald: Food Retailing Leader Jim Donald served as the CEO of Starbucks Corporation from April 2005 until January 2008. He joined Starbucks in October 2002 as President, North America. Jim served as Chairman, President and CEO of Pathmark Stores, Inc. from 1996 until joining Starbucks in 2005. J
Slide 31: We Believe Target Needs A Retailer on its Board
We Believe Target Needs A Retailer on its Board Target 6.3% 2008 Retail EBIT margin Wal-Mart US 7.3% 2008 Retail EBIT margin Retail EBIT Margins Even before the recession, Target's retail margins have been deteriorating while Wal-Mart's margins have remained higher and constant, despite Wal-Mart sel
Slide 32: Opportunities to Make Target More Profitable
Opportunities to Make Target More Profitable Given the marked differences in profitability between Target and Wal-Mart, we believe there are opportunities to improve Target's retail margins. Having Jim Donald, an experienced retail operator, on the board can only help Target become a more profitable
Slide 33: Compare Jim Donald with Mary Dillon
Compare Jim Donald with Mary Dillon Jim Donald Nominee for Shareholder Choice Mary Dillon Target Incumbent Nominee EVP and Global Chief Marketing Officer for McDonald's Is fast-food marketing experience highly relevant to Target? Ms. Dillon is not a grocery store operator Target does business with M
Slide 34: Credit Cards: Richard Vague
Credit Cards: Richard Vague
Slide 35: Target Initially Resisted a Transaction for its Receivables
Target Initially Resisted a Transaction for its Receivables 34 "There have been a number of recent transactions where retailers have exited direct ownership of their receivables and entered into relationships with large financial institutions to manage their programs. Many of you have asked why we d
Slide 36: Initially Resisted a Transaction for its Receivables (cont'd)
35 "We have consistent performance ... and we're enjoying double-digit growth rates," Scovanner said. "No one else in the credit-card arena has those attributes. For the life of me, I don't understand why those attributes in combination would cause anyone to want to get into an active mode of analyz
Slide 37: Pershing Square Urged Target to Transfer Credit Risk
36 Pershing Square Urged Target to Transfer Credit Risk On August 2, 2007, Pershing Square first met with Target management to discuss a credit card partnership transaction with a financial institution that would materially reduce credit and funding risk Thereafter, in multiple calls and a meeting i
Slide 38: We Believe Target Made Poor Underwriting Decisions
We Believe Target Made Poor Underwriting Decisions "Average receivables grew 19.6% over last year, faster than our pace of sales primarily due to changing the product features for yet another group of our higher credit quality Target card accounts to become higher limit Target Visa accounts." Doug S
Slide 39: The Results: Significant Profit Declines
The Results: Significant Profit Declines 38 In our view, as a result of poor underwriting decisions and exposure to credit risk, Target's credit card operating profits declined 65% in 2008 Credit Card EBIT Credit Card EBIT as a % of average receivables 65% drop $ in millions
Slide 40: Underperforming Relative to Credit Card Peers
Underperforming Relative to Credit Card Peers 39 Target Credit Card Competitor Average (JPM, BAC, AXP, COF, DFS) In 2008, Target's net write-offs as a % of average receivables increased to 9.3% from 5.9% the year prior. This compares to 5.7% for Target's credit card competitors in 2008 ~360 bps spre
Slide 41: Underperforming Relative to Credit Card Peers
Underperforming Relative to Credit Card Peers 40 In 2008, Target's bad debt expense as a % of average receivables increased to 14.4% from 6.6% the year prior. This compares to 7.3% for Target's credit card competitors Target Credit Card Competitor Average (JPM, BAC, AXP, COF, DFS) Bad Debt Expense a
Slide 42: Richard Vague: Leading Credit Card Executive
Richard Vague: Leading Credit Card Executive Richard Vague has served as CEO and co-founder of Energy Plus Holdings LLC, a Philadelphia-based, progressive, independent Energy Service Company (ESCO) since 2007. From December 2004 until 2007, Richard served as the Chairman and CEO of Barclays Bank Del
Slide 43: Compare Richard Vague with Richard Kovacevich
Compare Richard Vague with Richard Kovacevich Richard Vague Nominee for Shareholder Choice Richard Kovacevich Target Incumbent Nominee Chairman of Wells Fargo & Company Voted to retain the credit risk associated with Target's credit card business We believe this decision ultimately led to dramatic p
Slide 44: Real Estate: Michael Ashner
Real Estate: Michael Ashner
Slide 45: Target: Significant Real Estate Ownership
Target: Significant Real Estate Ownership Target owns the highest percentage of its real estate compared to other big box retailers % DCs owned(3): 82% ND 2%(4) 84% 71% 90% 52% 54% ND 86% 79% ND ND 55% 36% ND ND 27% % owned units/land(2): Represents data from latest 10-K filing "ND" represents Not D
Slide 46: Target: A Leading Owner of Retail Real Estate in the US
45 Target: A Leading Owner of Retail Real Estate in the US Target currently owns approximately 213 million square feet of retail square footage (1), more than any other publicly traded retail real estate company in the U.S. today based on our estimates (1) Includes owned and combined retail square f
Slide 47: The Market Does Not Appreciate Target's Real Estate
The Market Does Not Appreciate Target's Real Estate $40/Share(1) Large Cap REITs (1) Target's Market Valuation (1) 2009E EV / EBITDA Real Estate Companies and Private Ground Lease Valuations 2009E EV / EBITDA 6.5x 14.3x Recent "Big Box" Ground Lease (2) 17.0x Real estate companies trade at substanti
Slide 48: Questions to Ask
Questions to Ask Given the stock market's discounted valuation of Target's vast real estate holdings, wouldn't shareholders want to investigate opportunities to create value? Pershing Square made several suggestions to Target, including a tax-free 19.9% REIT IPO, which Pershing Square believed would
Slide 49: Michael Ashner: Experienced Real Estate Executive
Michael Ashner: Experienced Real Estate Executive Michael Ashner has served as the CEO of Winthrop Realty Trust, Inc. since December 31, 2003 and Chairman of the board of directors since April 2004. Michael served as the Executive Chairman of Lexington Realty Trust, a REIT from December 31, 2006 thr
Slide 50: Compare Michael Ashner with Solomon Trujillo
Compare Michael Ashner with Solomon Trujillo Michael Ashner Nominee for Shareholder Choice Solomon Trujillo Target Incumbent Nominee CEO of Telestra Corporation an Australian telecom company We do not believe that Mr. Trujillo's Australian telecommunications background brings relevant expertise to a
Slide 51: Shareholder Value: Bill Ackman
Shareholder Value: Bill Ackman
Slide 52: Board Lacks Significant Shareholder Representation
Board Lacks Significant Shareholder Representation 51 Target's incumbent board owns less than 0.3% of Target. By contrast, Pershing Square owns 7.8% of Target Source: Company filings Pershing Square Target's Board Owns ~0.3% of Target in common stock and options comprised of: ~0.1% in common stock ~
Slide 53: William Ackman: Leading Shareholder
William Ackman: Leading Shareholder Bill Ackman is the founder and managing member of the general partner of Pershing Square Capital Management, L.P., an investment adviser founded in 2003 and registered with the SEC. Pershing Square is a concentrated research-intensive fundamental value investor in
Slide 54: Compare Bill Ackman with George Tamke
Compare Bill Ackman with George Tamke George Tamke Target Incumbent Nominee Bill Ackman Nominee for Shareholder Choice Partner at Clayton, Dubilier & Rice, a leveraged buyout firm o Owns 0.01% of Target in common stock and options þ Has no significant investment experience in multi-billion dollar re
Slide 55: Pershing Square: Track Record of Success
Pershing Square: Track Record of Success In our view, Pershing Square has established a track record of creating shareholder value in retail, consumer, and other businesses 54 Canada
Slide 56: Corporate Governance: Ron Gilson
Corporate Governance: Ron Gilson
Slide 57: Ron Gilson: Corporate Governance Authority
Ron Gilson: Corporate Governance Authority Ron Gilson is the Meyers Professor of Law and Business, Stanford Law School (1979 to present) and the Marc and Eva Stern Professor of Law and Business, Columbia University School of Law (1992 to present). Ron is a fellow of the American Academy of Arts and
Slide 58: Target: Avoiding the Real Issues
Target: Avoiding the Real Issues
Slide 59: Target: Avoiding the Real Issues
Target: Avoiding the Real Issues We believe the Real Issue of this election is that Target's board is suboptimal Lacks significant relevant senior operating experience No significant shareholder representation The challenging economic environment, which may continue for many years, requires the high
Slide 60: "Favoring Risk Taking"
"Favoring Risk Taking" Pershing Square's sizeable derivative position creates an incentive for risk taking Target is Pershing Square's largest investment Pershing Square owns $1 billion in common stock and $280 million in stock options Unlike the incumbent board, Pershing Square paid cash for its st
Slide 61: "Risky Agenda"
"Risky Agenda" Target's misleading stance: Pershing Square has launched a proxy contest to push its real estate agenda The ACTUAL FACTS: The Nominees for Shareholder Choice are entirely independent There is no "Bill Ackman slate" The independent nominees have no pre-conceived real estate agenda Even
Slide 62: Credit Ratings and Risk
Credit Ratings and Risk Since our first meeting with management, Pershing Square has urged Target to decrease credit risk Target instead chose to maintain credit exposure to the credit card business In Pershing Square's view, Target can be an enormously valuable company without the need to over-leve
Slide 63: "Hasty Selection"
"Hasty Selection" Questions to Ask Target: Why are the current independent board members the most qualified to serve on the board of Target, a retail and credit card company? Why does Target's board continue to nominate its own members and not conduct a professional search for those with relevant se
Slide 64: Target Says: "We do not believe that Pershing Square's nominees would add value"
Target Says: "We do not believe that Pershing Square's nominees would add value to the Board." - - Target spokesperson "Ackman campaign for Target like prize fight" Reuters, 4/18/2009 63
Slide 65: Really?
Really? 64 (1) Consisting of 3.3% in shares of common stock and 4.5% in stock options.
Slide 66: Corporate Elections and Shareholder Choice
Corporate Elections and Shareholder Choice
Slide 67: Pershing Square Offers Shareholder's a Choice
Pershing Square Offers Shareholder's a Choice In this election, you can choose to vote for: The Nominees for Shareholder Choice, or Target's incumbent slate, or Nominees from each of the two slates Had Pershing Square not nominated a slate, shareholders would have no viable alternative other than to
Slide 68: Request for a Universal Proxy card: Rejected
Request for a Universal Proxy card: Rejected The Target Board is Attempting to Limit Choice 67 Pershing Square bears the expense Target's Reasons Too expensive Liability concerns Feasibility confirmed by Broadridge, consent of parties is all that is needed Can be implemented at any time Reality Shar
Slide 69: How We Think about Voting
68 How We Think about Voting How to Choose Considerations Should shareholders be forced to simply choose from competing slates? Should shareholders have the option of choosing the best nominees from all available candidates? Maintaining Continuity Incumbent Nominees vs. Shareholder Nominees Which ca
Slide 70: Vote for the Nominees for Shareholder Choice
Vote for the Nominees for Shareholder Choice 69 GOLD PROXY CARD (1) Consisting of 3.3% in shares of common stock and 4.5% in stock options.