In his letter, Ackman said he sold holdings in Sears Holdings Corp, Canadian Tire Corp Ltd and Austrian Post because the companies each had controlling shareholders.
He said one of his company’s important competitive advantages is the ability to force change at companies.
“Other than in special circumstances, we do not expect to make investments in controlled companies in the future,” he wrote.
Ackman sells stake in AIG, calls it a mistake - reuters.com
From the article: “Find a theme and export it: Ackman says he invested in Sears and Sears Canada because the retailing companies financed their credit-card receivables on its own balance sheet, which wasn’t well-understood by the markets. He used the same kind of thinking to tackle Target, which he believed was strong company with a solid debt profile and also one of the only retailers to still finance its credit cards in-house.In the case of Sears, Ackman evaluated it as its component parts, including Sears Hardware, Home Services, Sears Canada, Land’s End and Sears Mexico, all of that is before you get to the company’s extensive real estate value. “The only thing wrong is the stock price,” he said, a line that drew laughs, because Ackman acknowledged later, it bore a similarity to the old joke about “other than that, how was the show, Mrs. Lincoln.”
Bill Ackman Part II: Eight Easy Steps to Becoming a Short-Seller - wsj.com
From the article:”Sears Holdings‘ annual meeting apparently turned into a battle of the hedge fund managers as William Ackman took Sears chairman Edward Lampert to task over the retailer’s performance.
“You’re the reason we’re here,” Mr. Ackman, the head of hedge fund Pershing Square Management told Mr. Lampert. “We think Sears is undervalued. Your disclosure is not as forthcoming as it should be.”
Mr. Ackman said investors need more transparency on operations, such as the home services business.Mr. Lampert said that retailing “hasn’t gotten better” but he expects to hit the ground running when the shopping slowdown ends.
But The Chicago Tribune noted that Mr. Lampert, a star hedge fund manager who owns half of Sears Holdings, is disinclined to disclose much. Even when pressed by shareholders to be more forthcoming and break out the financial performance of its various businesses, Mr. Lampert apparently did his best to keep his specific plans for the retailer’s future under wraps.
From the 10K:
Page 3:
Home Services—Product Repair Services, the nation’s largest product repair service provider, is a key element in our active relationship with more than 43 million households. With over 10,000 service technicians making over 13 million service calls annually, this business delivers a broad range of retail-related residential and commercial services across all 50 states, Puerto Rico, Guam and the Virgin Islands under the Sears Parts & Repair Services and A&E Factory Service brand names.
A&E Factory Service is an appliance-repair joint venture owned by Whirlpool and Sears Holdings Corp. What does Ackman see in A&E Factory Service? How much revenue does A&E generate for Sears Holdings? Does Ackman want to see Sears sell its stake in A&E?
On A&E Factory Service website, the company boasts over 2 million+ in-home service calls per year. Two million services calls @ $100 average repair can add up to some significant revenue.
From the Sears Parts Direct website:
Sears Home Services, a unit of Sears Holdings Corporation, is the nation’s largest provider of home services for our customer’s products and homes. With more than 13 million service calls made annually, Sears Home Services maintains the nation’s largest mobile service fleet with over 10,000 certified technicians trained in the latest technology offering nationwide coverage and repairs on most major brands of appliances, electronics, and lawn and garden, HVAC and fitness equipment, no matter where they were purchased.
Sears Home Services provides customers with flexible scheduling options 24 hours a day, seven days a week via its Client Call Center and sears.com. We also offer state-of-the-art repair centers conveniently located throughout the U.S. that support repairs for carry-in products. For the home, we provide a wide variety of services, including window replacement, cabinet refacing, siding, carpet and duct cleaning and more.
Sears PartsDirect is the premier provider of repair parts and accessories for all major brand appliances, electronics, and lawn and garden equipment regardless of where you bought them. As a member of the Sears Home Services family,Sears PartsDirect offers genuine parts from the original manufacturers, all backed by the Sears Satisfaction Guarantee.
Sears PartsDirect has more than 7 million parts and accessories from more than 450 manufacturers and we offer more than 750,000 product schematics to help you find exactly what you’re looking for.
The popular thesis for Sears is the “value of the real estate”, but I find it interesting that Ackman mentioned the Home Services business during the Annual Shareholder Meeting.
From the 1-22-2008 Press Release:
Sears Holdings Corporation today announced that it is implementing an organizational structure and operating model designed to simplify the way its business lines are managed and create greater autonomy and focus forthe business unit management teams.
The new structure is built on five types of business units that enable each organization to focus on their core categories and capabilities: operating businesses, support, brands, online and real estate. The operating business units will consist of the company’s current lines of business such as home appliances, electronics, and apparel. The support units will include the functions that provide operational and administrative support to the operating businesses including marketing, store operations, customer strategy and finance. The brand units will be responsible for growing the value of Sears Holdings brand portfolio. The real estate business unit and an online business unit will focus on increasing the sales productivity of the company’s physical and virtual real estate.
Where will Home Services live within the new organization structure? Will Lampert spin-off the Home Services business or sell it?
As of May 23, 2008, Sears Holdings has 132,013,524 outstanding common shares. ESL Investments currently owns 65,639,184 shares giving the fund a 49.7215% ownership stake in SHLD. Notice how SHLD buybacks have significantly slowed as ESL closed in on the 50% ownership stake. Is Lampert timing the buybacks to coincide with a larger event?
Directors & Executive Officers as a group (19 persons) own 55.3% of Sears Holdings. The Tisch family alone owns 4,219,101 shares.
Eddie Lampert’s stake in Auto Nation is 40%. His fund has been aggressively buying shares in 2008. Will Lampert declare a 50% ownership stake in SHLD and AN at the same time?
From Acxiom’s 2007 10-K:
“Our client base consists primarily of Fortune 1000 companies in the financial services, insurance, information services, direct marketing, publishing, retail and telecommunications industries. Some of our major clients include American Express, Bank of America, Baxter International, Capital One, CitiGroup, City of Chicago, DeLuxe, Discover Card, eFunds, Federated Department Stores, GE, General Motors, Guideposts, HSBC Bank USA, HSBC Technology & Services (USA), IBM, Information Resources, Inc., JP Morgan Chase, Philip Morris, Primedia, R.L. Polk, RR Donnelley, Sears, Sprint, TransUnion and Washington Mutual.”
RBS Partner’s recently took up a 4.2% stake in the company. Everyone knows Lampert is a data mining geek constantly scrutinizing sales data. Acxiom’s value proposition is the enormous amount of data it owns on consumers and their buying habits. How do you value all the large longitudinal data sets currently provided by Acxiom? If large diversified retailer purchased Acxiom, would it provide a competitive advantage?
Deep value investors (Fairholme, Pershing Square, Force Capital, Perry, RBS, Legg Mason) and insiders own over 80% of the shares. They are not selling; in fact, Fairholme practically doubled its shares since their last filing. Would Fairholme make an $800M bet on SHLD on the allure of Lampert alone? Would Ackman buy $600M in SHLD if he did not see something? The same guy that reportedly read over 100,000 pages during his analysis of short sale of MBIA and Ambac.
From the last SHLD 10-K:
The share repurchase program, authorized by our Board of Directors, has no stated expiration date and share repurchases may be implemented using a variety of methods, which may include open market purchases, privately negotiated transactions, block trades, accelerated share repurchase transactions, the purchase of call options, the sale of put options or otherwise, or by any combination of such methods.
Subsequent Event
On May 28, 2008 our Board of Directors approved the repurchase of up to an additional $500 million of the Company’s common shares. This authorization, when added to the $143 million remaining as of May 3, 2008 under previous authorizations, provides us with a current aggregate authorization of $643 million.
How could the Board of Directors have authorized a $643 million during a quarterly loss if they believed it was a poor business decision? At today’s prices, $643 million would buy 7.6M shares. With less than 26 million shares actively traded in the market and a short interest on 24,878,638 (as of 5-15-08) , it will definitely make things interesting.
•A story in Tuesday’s business section mischaracterized the reason activist investor William Ackman attended the annual meeting of Sears Holdings Corp. Ackman said he flew to Hoffman Estates from New York to hear Sears Chairman Edward Lampert speak. He had not tried to call Lampert.
From the article: “In a Dec. 27 letter to his investors, Ackman said Target’s stock can hit $120 a share within three years if the company completes a previously announced $10 billion share buyback; sells its $8 billion in credit-card loans, a move it is considering; and extracts cash through its sizable real estate portfolio, which it has not discussed.
He estimated Target’s real estate is worth $42 billion, approximately the same as its stock market value.
In his Dec. 27 letter, Ackman noted that Target owns a larger percentage of its real estate than any other major retailer. Target owns 95 percent of its buildings. Ackman wrote he anticipates discussing his real estate analysis with Target early this year.
“We believe that there are transactions that will enable Target to monetize the company’s real estate and development business in a tax-efficient manner,” he said.
Do Ackman have the same plan for Sears Holdings?
Ackman wants Target to target its real estate - startribune.com