Slide 1: The Nominees for Shareholder Choice
The Nominees for Shareholder Choice May 11, 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 The Nominees for Shareholder Choice Food Retailing: Jim Donald Credit Cards: Richard Vague Real Estate: Michael Ashner Shareholder Value: Bill Ackman Corporate Governance: Ron Gilson Target's Board: Avoiding the Real Issues Corporate Election
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 directors 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 dest
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 12 incumbent directors serve on 18 other boards (including Citi,
Slide 14: 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 13 Our vi
Slide 15: 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 14 Source: Target proxy
Slide 16: Average Tenure of Nearly a Decade
Average Tenure of Nearly a Decade Incumbent Nominees 15 The average tenure of the independent directors is approximately 9 years. The average tenure of the incumbent nominees is approximately 10 years
Slide 17: Board's Strategic Mistake: Credit Card
Board's Strategic Mistake: Credit Card 16 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 18: Board Lacks Initiative: Real Estate
Board Lacks Initiative: Real Estate Target owns over 200 million square feet of high-quality retail real estate We believe that Target's real estate has a replacement cost of nearly $40 billion (based on management's estimates of the current average cost to build its stores and distribution faciliti
Slide 19: Governance: Faulty Nomination Process
Is Target's board nomination process fair, open, and thorough? Governance: Faulty Nomination Process 18 In our view, the board nomination process is insular, conflicted, and unreceptive to shareholder input Nominating Committee Chair Sanger received over $1.25 million in fees and equity compensation
Slide 20: Request for a Universal Proxy Card: Rejected
Request for a Universal Proxy card: Rejected Board is Attempting to Limit Choice 19 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
Slide 21: 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 22: Grading the Board: Key Duties
Grading the Board: Key Duties 21
Slide 23: Suboptimal board and underperformance during recession
22 We believe that Target's suboptimal board has contributed to the company's material underperformance during this recession
Slide 24: Underperformance Relative to Wal-Mart
Underperformance Relative to Wal-Mart Target Down 51% Wal-Mart Up 11% 23 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 25: Underperformance in Same Store Sales Growth
Target Wal-Mart US 24 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 26: Underperformance in Earnings Per Share Growth
Wal-Mart Target Year-over-Year Growth Rate of Reported Quarterly EPS from Continuing Operations 25 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 27: Target Retail Profitability Should Be Higher
Target Retail Profitability Should Be Higher 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 sellin
Slide 28: 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 29: Is Target's Board Too Insular?
Is Target's Board Too Insular? Chose board members without relevant senior operating experience in Target's key business lines and assets Rejected significant shareholder representation Continually re-elects its own members, despite the lack of relevant senior operating experience Ignored major shar
Slide 30: 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 31: Time for Board Change
30 In our view, the Nominees for Shareholder Choice will bring much needed "new life" 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
Slide 32: Introducing the Nominees for Shareholder Choice
Introducing the Nominees for Shareholder Choice Gold Proxy Card
Slide 33: The Nominees for Shareholder Choice
The Nominees for Shareholder Choice 32 (1) Consisting of 3.3% in shares of common stock and 4.5% in stock options.
Slide 34: Nominees Are Entirely Independent
33 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 35: Comparison of Slates
Comparison of Slates The Incumbent Nominees The Nominees for Shareholder Choice 34 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 36: Food Retailing: Jim Donald
Food Retailing: Jim Donald
Slide 37: 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 36
Slide 38: Food: Critical Strategic Growth Initiative
Food: Critical Strategic Growth Initiative 37 "We continue to focus on food as a priority . . . [W]e've nearly doubled our commitment to food over a five to seven- year timeframe." Gregg Steinhafel, CEO Target 2Q'07 Earnings Call, 8/21/07 "We also continue to invest in our food offering in recogniti
Slide 39: Target: Slow to Innovate with Grocery/Superstores
Target: Slow to Innovate with Grocery/Superstores Competitive Landscape - 1993 Competitive Landscape - Today Wal-Mart was not always the dominant player in the supercenter / grocery space, but eventually emerged as a clear segment leader Number of supercenters Number of supercenters Did Target miss
Slide 40: Increasing Food Could Help Sales Significantly
Increasing Food Could Help Sales Significantly Target Wal-Mart US 39 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 41: 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 42: Why Wasn't Target More Profitable in the Boom Times?
Why Wasn't Target More Profitable in the Boom Times? Consumables Consumables Non- Consumables Non- Consumables 59% 41% Consumables: Typically lower margin goods Non-consumables (e.g., apparel, home furnishings): Typically higher margin goods Source: Company filings. For Wal-Mart, consumables incorpo
Slide 43: Opportunities to Make Target More Profitable
Opportunities to Make Target More Profitable Given the differences in profitability between Target and Wal-Mart, we believe there are opportunities to improve Target's retail margins. Having an experienced retail operator on the board can only help Target become a more profitable company in our view
Slide 44: 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 45: 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 46: Credit Cards: Richard Vague
Credit Cards: Richard Vague
Slide 47: Target Initially Resisted a Transaction for its Receivables
46 "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 48: Pershing Square Urged Target to Transfer Credit Risk
47 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 49: 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 50: The Results: Significant Profit Declines
The Results: Significant Profit Declines 49 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 51: Underperforming Relative to Credit Card Peers
Underperforming Relative to Credit Card Peers 50 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 52: Underperforming Relative to Credit Card Peers
Underperforming Relative to Credit Card Peers 51 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 53: 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 54: 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 55: Real Estate: Michael Ashner
Real Estate: Michael Ashner
Slide 56: 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 57: Target: A Leading Owner of Retail Real Estate in the US
56 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 58: 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 59: Questions to Ask
Questions to Ask Given the stock market's discounted valuation of Target's vast real estate holdings, shouldn't the board be willing 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 w
Slide 60: 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 61: 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 62: Shareholder Value: Bill Ackman
Shareholder Value: Bill Ackman
Slide 63: Board Lacks Significant Shareholder Representation
Board Lacks Significant Shareholder Representation 62 Target's incumbent board beneficially owns less than 0.3% of Target. By contrast, Pershing Square beneficially owns 7.8% of Target Source: Company filings Pershing Square Target's Board Owns ~0.3% of Target in common stock and options comprised o
Slide 64: 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 65: 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 66: 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 65 Canada
Slide 67: Corporate Governance: Ron Gilson
Corporate Governance: Ron Gilson
Slide 68: 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 69: Target's Board: Avoiding the Real Issues
Target's Board: Avoiding the Real Issues
Slide 70: Target's Board: Avoiding the Real Issues
Target's Board: 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 Lacks significant shareholder representation Has made expensive mistakes in assessing strategic transactions Has failed on k
Slide 71: "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 72: "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 73: Credit Ratings and Risk
Credit Ratings and Risk Since our first meeting with management, Pershing Square has urged Target to decrease credit risk Instead, Target's board chose to maintain credit exposure to the credit card business Fall 2008, Pershing Square encouraged Target to halt buyback program In Pershing Square's vi
Slide 74: "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 new directors with sen
Slide 75: Target Says: nominees would not 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 74
Slide 76: Really?
Really? 75 (1) Consisting of 3.3% in shares of common stock and 4.5% in stock options.
Slide 77: Corporate Elections and Shareholder Choice
Corporate Elections and Shareholder Choice
Slide 78: 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 79: How We Think about Voting
78 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 80: Vote for the Nominees for Shareholder Choice
Vote for the Nominees for Shareholder Choice 79 GOLD PROXY CARD (1) Consisting of 3.3% in shares of common stock and 4.5% in stock options.