Vulture Capitalism

One of the most prominent trends of the past 10-15 years has been the rise of vulture capitalists. These are folks who regard firms like a loaf a bread, with the shares as slices. All the firms are of equal interest to them and it doesn't matter what the company actually does. All that matters is that the stock price can be run up one way or the other. Apparently Target has fallen into the clutches of one of this breed. Pershing Square Capital Management has bought about 10% of the shares and is now pressuring Target to "increase stock value". The current effort is to get Target to sell off part of its credit card receivables and get cash in return. This can then be used for stock buybacks and thus boost the price. When it gets to the point where Pershing Square sees the profit it is aiming at it will sell it's holdings at a nice profit. What isn't being considered is that the credit card operation has been one of the better revenue sources for Target in the past few years. So by selling off part of it they are sacrificing a continuing revenue stream for a short-term gain. Here's a press release on the matter: Target in Talks to Sell Half of Credit-Card Unit Contrast this with Walmart where a corporate raider could never be able to apply this sort of pressure to the company. That's the benefit of owning a controlling interest. One has to ask, if management can be forced into making deals which harm the long-term prospects of a firm, then what sort of commitment should employees give? Apparently the attitude "it's just a job" seems justified for most people. Sad, isn't it.

Leave a Reply

To prove you're a person (not a spam script), type the security word shown in the picture. Click on the picture to hear an audio file of the word.
Anti-spam image