Slide 1: The Nominees for Shareholder Choice
The Nominees for Shareholder Choice May 14, 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 Why Board Change is Warranted Suboptimal Composition Mistakes in Assessing Strategic Transactions Faulty Corporate Governance Underperformance in the Recession The Nominees for Shareholder Choice Questions and Answers
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: Pershing's Background with Target
April 2007: Pershing Square becomes a Target shareholder August 2007: Pershing Square, in its first meeting with Target management, proposes that Target pursue a credit card partnership transaction to minimize credit risk, eliminate funding risk, and increase Target's valuation September 2007: Targe
Slide 8: Pershing's Background with Target (cont'd)
May 2008: Pershing Square meets with management to discuss value creation opportunities regarding Target's real estate Pershing Square proposes a spin-off of a land-only REIT to Target shareholders Transaction would preserve Target's flexibility in controlling its buildings/brand and allow the marke
Slide 9: Pershing's Background with Target (cont'd)
Pershing's Background with Target (cont'd) 8 Fall 2008: Pershing Square encourages Target to halt buyback program due to credit market conditions October 2008: Pershing Square seeks shareholder input by publicly presenting "A TIP for Target Shareholders" Immediately after the presentation, Target is
Slide 10: Pershing's Background with Target (cont'd)
February 2009: Pershing Square meets with Target and Goldman Sachs to discuss the assumptions behind the board's decision Pershing Square learns that the board restricted Goldman Sachs to the narrow task of evaluating Pershing Square's proposal, rather than fully investigating all potential value-cr
Slide 11: Situation Overview
10 Situation Overview On March 17, 2009, Pershing Square announces the nomination of five independent candidates for the open seats on Target's board We did so principally because we believe that the incumbent Target board has: Suboptimal composition Made significant strategic mistakes that have des
Slide 12: Why Board Change is Warranted
Why Board Change is Warranted
Slide 13: Why Board Change is Warranted in Our View
Why Board Change is Warranted in Our View Board's Suboptimal Composition Lacks senior operating experience in key business lines and assets (1) Lacks significant shareholder representation Average tenure of independents nearly a decade Lack of focus by directors with competing business commitments B
Slide 14: Bill George quote on Target's board governance
"Ever since the Dayton family, led by former CEO Kenneth Dayton, took their company public in 1967, Target has been known for its superior board governance. Dayton's 1984 Harvard Business Review article became the national model for governance and the basis for many provisions in the Sarbanes- Oxley
Slide 15: Kenneth Dayton: Corporate Governance: the Other Side of the Coin
Kenneth Dayton, Dayton Hudson Corporation (now Target) President (1969-1974), Chairman (1974-1977), Chairman of Executive Committee (1977-1983) "Corporate Governance: the Other Side of the Coin" Harvard Business Review, January-February 1984 "We have listed . . . criteria that apply to all directors
Slide 16: Board's Suboptimal Composition
Board's Suboptimal Composition
Slide 17: Board Lacks Sufficient Relevant Experience
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 NO Retail senior operating experience NO Real Estate senior operating experience NO Credit Card senior operating experience 16 Our vi
Slide 18: 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 only 0.02% of the company in common stock Board Members 17 Source: Target proxy
Slide 19: Kenneth Dayton: 12-Year Term Limits Are Ideal
Kenneth Dayton: 12-Year Term Limits Are Ideal "To keep our board young, vital, and independent - and ensure a steady flow of fresh blood and new thinking - we have rigid policies of rotation and retirement. We expect directors to submit their resignations at age 65, or after 12 years of service, or
Slide 20: Five Directors Have > 12-Year Tenure
Five of 12 Directors Have > 12-Year Tenure Incumbent Nominees 19 The average tenure of the independent directors is approximately 9 years The average tenure of the incumbent nominees is approximately 10 years
Slide 21: Extending Term Limits: Solomon Trujillo
Extending Terms Limits: Solomon Trujillo Incumbent nominee, Solomon Trujillo has been on the Target board for 15 years Board term limits have been extended from 12 to 15, and recently to 20 years to accommodate Mr. Trujillo and other incumbent directors Is the continued service of an Australian Tele
Slide 22: Willingness to Commit Time and Energy?
"Willingness to Commit Time and Energy"? 21 Four of Target's incumbent directors, including two 2009 nominees, serve on the board of four companies. We question how much time these directors have to devote to Target Name 2009 Nominee Board Service Other than Target Austin No Abbott Laboratories (Exe
Slide 23: Board's Mistakes in Assessing Strategic Transactions
Board's Mistakes in Assessing Strategic Transactions
Slide 24: Board's Duty: Realization of Opportunities
23 "We state clearly in the board's position that it is the board's function 'as representatives of the shareholders, to be the primary force pressing the corporation to the realization of its opportunities and the fulfillment of its obligations to its shareholders, customers, employees, and the com
Slide 25: Strategic Alternatives: Grading the Board
Board's Duty: Realization of Opportunities Evaluation Execution Credit Card Partnership Real Estate Alternatives FAIL FAIL FAIL N/A In our view, Target's board failed in the evaluation of and execution of strategic alternatives for its largest assets Strategic Alternatives: Grading the Board 24
Slide 26: Ability to Challenge and Stimulate Management?
25 "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 27: Pershing Square Urged Target to Transfer Credit Risk
26 Pershing Square Urged Target to Transfer Credit Risk From August through December 2007, in multiple calls and meetings, Pershing Square endeavored to convince Target to transfer the credit and funding risks associated with its credit card operation to a partnering financial institution In May, 20
Slide 28: 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 29: Board's Strategic Mistake: Credit Card
Board's Strategic Mistake: Credit Card 28 Target's board decided not to transfer credit risk in a credit card transaction, despite Pershing Square's repeated requests. In 2008, Target's credit card operating profits fell 65% predominantly due to increased credit risk and bad debt expense Credit Card
Slide 30: Credit Card: Major Contributor of EBIT Decline
Credit Card: Major Contributor of EBIT Decline The decline of operating profit in the credit card segment represented 70% of the overall decline of Target's consolidated operating profits in 2008. We believe the performance of the credit card segment has been a major contributor to the Company's sig
Slide 31: Underperforming Relative to Credit Card Peers
Underperforming Relative to Credit Card Peers 30 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 32: Underperforming Relative to Credit Card Peers
Underperforming Relative to Credit Card Peers 31 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 33: Real Estate: Target's Largest Asset
Real Estate: Target's Largest Asset Real estate replacement cost: ~ $40 billion (1) Book value (land and buildings): $26 billion Recent enterprise value of Target: $49 billion 32 (1) Based on management's estimates of the current average cost to build stores and distribution centers.
Slide 34: Target: A Leading Owner of Retail Real Estate in the US
33 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 35: 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 36: 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 7.2x 14.3x Recent "Big Box" Ground Lease (2) 17.0x Real estate companies trade at substanti
Slide 37: Failure to Assess Alternatives for Real Estate
Failure to Assess Alternatives for Real Estate Despite the stock market's mispricing of Target's real estate assets, Target's board has been unwilling to examine alternatives to unlock real estate value Notably, the board assigned its advisors the narrow task of only evaluating Pershing Square's TIP
Slide 38: Board's Faulty Corporate Governance
Board's Faulty Corporate Governance
Slide 39: Faulty Nomination Process
Faulty Nomination Process 38 In our view, the board nomination process is insular, conflicted, and unreceptive to shareholder input Independent nominees Ashner and Vague were never interviewed Nomination Committee Chair Sanger would not explain why they were rejected Is Target's board nomination pro
Slide 40: Faulty Nomination Process (cont'd)
Faulty Nomination Process (cont'd) Nominating Committee Members Board Tenure Committee Members Up for Election in 2009 Calvin Darden 6 No Richard Kovacevich 13 Yes Anne Mulcahy 12 No Stephen Sanger 13 No George Tamke 10 Yes Did Messrs. Kovacevich and Tamke recuse themselves on their own nominations?
Slide 41: Board Does Not Foster an Ownership Culture
Board Does Not Foster an Ownership Culture Last Five Years of Activity in Target Stock (1) Executive Management Board (2) Total Open Market Purchases Total Sales Total $3.8 mm $(428.5) mm $3.8 mm $0.0 mm (1) Based on the trailing five years prior to the announcement of Pershing Square's nomination o
Slide 42: No Chairman / CEO Separation
No Chairman / CEO Separation "In essence, the chairman ensures the independence of the board - a condition that cannot exist when there is an all- powerful chairman-CEO who controls the agenda, the presentations, the discussions, and often the selection of the directors themselves." Kenneth Dayton,
Slide 43: Request for a Universal Proxy card: Rejected
Request for a Universal Proxy card: Rejected Rejection of Universal Proxy 42 Pershing Square will pay 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 Shareholders have e
Slide 44: Grading the Board: Key Duties
Grading the Board: Key Duties 43
Slide 45: Board has contributed to underperformance during this recession
44 We believe that Target's suboptimal board has contributed to the company's material underperformance during this recession
Slide 46: Underperformance Relative to Wal-Mart
Underperformance Relative to Wal-Mart Target Down 51% Wal-Mart Up 11% 45 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 47: Underperformance in Same Store Sales Growth
Target Wal-Mart US 46 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 48: Underperformance in Earnings Per Share Growth
Wal-Mart Target Year-over-Year Growth Rate of Reported Quarterly EPS from Continuing Operations 47 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 49: Target Depicts Its Returns Before the Recession
Target Depicts It's Returns Before the Recession 48 Source: Company filing
Slide 50: Recent 10-Year Shareholder Returns
Recent 10-Year Shareholder Returns While Target has outperformed the S&P over a ten-year period ending on the day before Pershing Square announced its nominees (3/17/2009), we note that it has underperformed its principal competitor Wal-Mart Total Shareholder Return 49
Slide 51: 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 52: Retailing is a Constantly Evolving Industry
Retailing is a Constantly Evolving Industry We believe that a key role of an independent board is to bring an outside perspective to challenge strategies that might have worked in the past but will likely need to evolve over time - contrary to Target's board's apparent instinct to maintain the statu
Slide 53: Dayton: Fresh, New Ideas Are Necessary
Dayton: "Fresh, New Ideas" Are Necessary "I think every director or trustee has a certain bell-shaped curve of contribution to make. It usually takes a year or two to really understand an organization and its needs, problems, and opportunities. After gaining that understanding, a board member then p
Slide 54: Time for Board Change: Fresh Blood
53 In our view, the Nominees for Shareholder Choice will bring much needed "fresh blood and new thinking" to Target's insular incumbent board The Nominees for Shareholder Choice offer deep and relevant experience, major stock ownership, and fresh perspectives Time for Board Change: Fresh Blood
Slide 55: Introducing the Nominees for Shareholder Choice
Introducing the Nominees for Shareholder Choice Gold Proxy Card
Slide 56: The Nominees for Shareholder Choice
The Nominees for Shareholder Choice 55 (1) Consisting of 3.3% in shares of common stock and 4.5% in stock options.
Slide 57: Nominees Are Entirely Independent
56 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 58: Comparison of Slates
Comparison of Slates The Incumbent Nominees The Nominees for Shareholder Choice 57 Lack senior operating experience in key business lines and assets Beneficially own less than 0.05% of the company Are accountable for strategic mistakes Three out of four incumbent nominees have served for at least a
Slide 59: 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 60: 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 Without Ms. Dillon, the boa
Slide 61: 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 62: Compare Richard Vague with Richard Kovacevich
Veteran credit card industry executive Co-founder of First USA, serving as its CEO until it was sold to Bank One (now JPMorgan Chase) Founded and sold Juniper Financial Valuable operating experience can assist Target achieve recovery in its credit card business Strong transaction experience and rela
Slide 63: 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 64: 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 65: 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 66: Compare Bill Ackman with George Tamke
Founder of Pershing Square, a public equity investment firm Pershing Square beneficially owns 7.8% in common stock and options (1) Represents the third largest beneficial owner of Target Significant investment experience in multi-billion dollar retail and consumer companies Compare Bill Ackman with
Slide 67: 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 68: Target Says: We do not believe 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 67
Slide 69: Really?
Really? 68 (1) Consisting of 3.3% in shares of common stock and 4.5% in stock options.
Slide 70: Questions and Answers
Questions and Answers