This report will be based on the Target Corporation, and will consist of two sections: 1) long-term financing policy and capital structure, and 2) an acquisition analysis. The first section will include: Target's most recent long-term financing decision; an analysis of the economic, business, and competitive background in which the financing occurred; Target's book value and market value; possible changes that would occur to Target's finance policy and capital structure if it was forced to consider re-organization and bankruptcy strategies; and finally discuss Target's international investment and financing opportunities, as well as foreign exchange risks. The second section will be a report to the board of directors that identifies a synergistic acquisition candidate for Target. This section will identify Target's proposed acquisition terms, price, financing, and potential negotiation strategies. This segment will also include price / earnings ratios, book value, current market value, and liquidation based on the supporting financial data. Also in this part will be a discussion of the general and specific risks inherent in an acquisition strategy. Background Information on Target
According to www.targetcorp.com, Target is an upscale discount retail chain that sells quality products at attractive prices, and prides itself on clean, spacious, and guest-friendly stores. Target is the second largest "general merchandise" retailer (behind Wal-Mart); selling almost anything one would need to complete the "one stop shop", especially with the addition of the SuperTarget stores. The first Target opened in Roseville, Minnesota in 1962. Since then, 1,330 stores located in forty-seven different states, which includes the 141 SuperTarget stores, have opened nationwide. Target also has twenty-two distribution centers located in nineteen states. In addition to the vast number of store locations, Target also has other businesses that include: Target.com, Target Financial Services, Associated Merchandising Corporation, and Target commercial Interiors. Through all the key businesses, Target employs nearly 300,000 people from diverse backgrounds. The current Chairman and CEO of Target is Bob Ulrich. Section 1 - Long-term Financing Policy and Capital Structure
Target has seen consistent growth since its inception, and has confidence that future growth will continue (see attached financial statements). In 2004, Target sold two of there business units, Mervyn's and Marshall Field's for approximately $4.9 billion. This allowed for extensive aggregate pretax cash that will be used for future store sites (as well as upper management bonuses). Target's Board also approved a $3 billion share repurchase program which they expect to complete in two to three years. The reason not clear for this, but Target probably thought that its stock was undervalued.
Target's recent financing strategy, in a nutshell, is to minimize the cost of borrowing. Target wants to make sure liquidity (converting assets into cash quickly) and access to capital markets (markets for financial instruments with an initial life of one year or more) remains a high priority. It also wants to sustain net exposure to floating rates and preserving a balanced gamut of debt maturities. Target wants to fund more capital expenditures, repurchase shares of stock, increase accounts receivable, increase maturities of long-term debt, and build up seasonal inventory. Target believes this can be accomplished by incorporating cash flows from operations with current levels of cash equivalents, proceeds from long-term financing activities, and issuance of short term debt (www.targetcorp.com).
Target's capital structure (the mix of the various types of equity and debt used) decisions are based on four factors: business risk, tax position, financial flexibility, and...