Dillard's (DDS) Holder Barington Capital Urges Changes

In a 13D filing yesterday on Dillard's Inc. (NYSE: DDS), Barington Capital and related funds disclosed a 5.32% stake in the company and delivered a letter to the company requesting a number of measures to improve the Company's profitability and share price performance.

The changes recommended by Barington include:

(i) - initiatives to improve cost containment, inventory management and the Company's merchandising strategy, including those outlined in the January 29 Letter;

(ii) - measures to enhance the value of the Company's real estate portfolio, including the conversion of certain properties into higher and better uses, the closure of underperforming stores and the sale/leaseback of owned properties;

(iii) - a Board evaluation of (A) the Company's senior management team, to ensure that the Company has employed the best available executives to run the Company, and (B) the Company's executive compensation arrangements, to ensure that executive pay is appropriately aligned with the Company's financial performance; and

(iv) - measures to improve the Company’s record in the area of corporate governance, including, without limitation, the termination of the Company's A/B common stock class structure, amendment of the Company's majority voting standard to meet ISS/RiskMetrics Group standards, termination of the Company’s "poison pill" rights plan if not approved by the Company’s stockholders and separation of the Chairman and CEO positions

A Copy of the Letter:

January 29, 2008

The Board of Directors
Dillard’s, Inc.
1600 Cantrell Road
Little Rock, Arkansas 72201

To the Board of Directors of Dillard’s, Inc.:

As representatives of a group of stockholders that owns over 5.3% of the outstanding Class A Common Stock of Dillard’s, Inc., we believe that the vast value potential of the Company is not being realized. In our opinion, if the Company were more effectively managed it would be worth substantially more than its current stock price. Furthermore, Dillard’s sizable asset base provides the Company with a number of untapped options to create additional value for stockholders.

Given the Company’s poor share price performance over the past six months, we are convinced that Dillard’s is an undervalued asset with tremendous opportunity for improvement:

* Dillard’s $7.5 billion revenue base offers significant margin leverage capable of producing sizable cash flow gains from any future operating improvements. The Company’s geographic concentration, especially in high-growth areas of the Southeast and Southwest United States, offers unique regional opportunities for its 331-store portfolio. Furthermore, the Dillard’s brand name is well-regarded in the department store sector and the Company has received above average scores in the area of customer loyalty according to a recently released survey by Brand Keys.1 Clearly, Dillard’s has the scale and brand recognition to be a successful retailer.

* As Dillard’s trailing twelve month operating free cash flow margin2 is 2.4% versus 7.7% for its department store peer group,3 we believe that stockholders can realize enormous upside if margins can be improved to the levels achieved by the Company’s peers. We see a number of opportunities to immediately reduce the Company’s cost base, including by improving sourcing, rationalizing SG&A expenses and lowering capital expenditures. We also believe that there are a host of initiatives in inventory management and merchandising that can drive customer traffic and enhance margins. Among other things, we believe that Dillard’s needs to tighten its current assortment of offerings and vendors and consider a more regular promotional cadence, as its stores, in our opinion, are over-inventoried. In addition, we believe that Dillard’s needs to embark upon an aggressive re-merchandising effort that features new vendors (including exclusive offerings) and updated private label and in-house collections to differentiate its value proposition for customers. Furthermore, it is our belief that the Company needs to enhance its brand marketing by adding more image and lifestyle campaigns that communicate a revitalized message to the marketplace. We are convinced that each of these initiatives would add excitement and newness to the Dillard’s shopping experience and attract customers to its stores.

* Dillard’s owns approximately 75% of its store portfolio, comprised of approximately 42 million square feet of retail real estate. Currently, the Company’s shares trade at only 0.5x its tangible book value of approximately $32.50 per share. This represents a significant discount to the Company’s peer group, which trades at an average tangible book value multiple of approximately 2.0x.4 We also believe that Dillard’s tangible book value is understated, since the current market value of the Company’s owned real estate far exceeds its depreciated book value. In fact, in a November 26, 2007 research report, Deutsche Bank estimated Dillard’s net asset value before taxes to be $59 per share. Deutsche Bank also notes that “actions taken to unlock the Company’s real estate value would be positive for the shares, as the NAV [net asset value] for Dillard’s [is] greater than the value based solely on operating fundamentals.” It is our belief that there are a number of measures that the Company can take to enhance the value of its real estate portfolio, including converting certain properties to higher and better use, closing underperforming stores and engaging in sale/leaseback transactions.

As you know, Barington has attempted to reach out to you and William T. Dillard, II, the Company’s Chairman and Chief Executive Officer, several times over the past six months to discuss measures to improve shareholder value. Unfortunately, it appears to us that you have not only ignored our letters but have also done little to improve the Company on your own initiative, as Dillard’s financial results have gone from bad to worse since our initial communication in June 2007:

* Dillard’s monthly same store sales growth rate during the six-month period from July 2007 to December 2007 averaged (4.8)%, approximately 200 basis points worse than the same period the prior year.

* Dillard’s generated operating losses of $(24.5) million and $(6.5) million for the second and third quarters ended August 4, 2007 and November 3, 2007, respectively. The resulting average margin was (0.9)% – a 300 basis point drop in profitability from the same period last year. In contrast, Dillard’s peer group generated an average operating income margin of approximately 4.5% for the second and third quarters of 2007, which was roughly equivalent to the prior period.

* Dillard’s stock price has fallen by approximately 52% from June 30, 2007 through the close of trading on January 25, 2008, erasing more than $1.5 billion in shareholder value. The Company materially underperformed its peers during this time period, as measured by the S&P Retail Index, a leading benchmark for the industry, which fell by approximately 23% over the same period.

The disappointing financial performance of Dillard’s must be addressed. While we acknowledge that the market conditions in the department store sector have been challenging over the past few quarters due to concerns with a weakening U.S. economy, the magnitude of Dillard’s recent weak results cannot be attributed to the economy alone. Unfortunately, the past few quarters are but a continuation of Dillard’s history of chronic underperformance. As we have noted in prior correspondence, on average, Dillard’s same store sales growth rate has lagged its peer group by nearly 400 basis points per annum over the past five years. Furthermore, Dillard’s has not posted an increase in annual same store sales since 1999.

We note that the Company repurchased approximately 5.2 million shares (nearly 7% of the total shares outstanding) during the third quarter ended November 3, 2007 at an average price of $21.46 per share. The fact that the Company elected to repurchase such a large percentage of its shares indicates to us that management also believes that Dillard’s is significantly undervalued at its current stock price levels. While we believe the Company’s decision to repurchase a sizable amount of its shares is a positive step, it fails to address the myriad of other opportunities to create long-term value. Further measures, including those outlined in this letter, need to be taken.

Dillard’s can and must deliver considerably better financial and share price performance. As significant stockholders of the Company, we are committed to taking all actions necessary to enhance shareholder value.

Sincerely,

James A. Mitarotonda

Chairman and Chief Executive Officer

Barington Capital Group, L.P.

Michael A. Popson

Managing Director

Clinton Group, Inc.

Icahn Confirmed Plans To Nominate 3 To Biogen (BIIB) Board, Says Buyout Process Was Flawed; Boosts Stake

Carl Icahn confirmed that his affiliates gave notice to Biogen Idec (Nasdaq: BIIB) that they intend to nominate three persons to the company's board of directors at the upcoming annual meeting.

Icahn stated, "we are taking this action because we believe that Biogen's recent purported attempt to find a suitor was not conducted in a way to enhance the success of the endeavor. We believe that the process was flawed in a number of key respects and that the process was run to placate us and other large shareholders who we believe asked for Biogen to find a buyer."

Icahn noted that it has been reported that Biogen refused to allow bidders to talk to the company's Tysabri partner, Elan Phamaceuticals (NYSE: ELN). Elan has some change-of-control rights on Tysabri. Icahn, said while Elan indicated that they would not invoke change-of-control rights, any prospective bidders would want to talk to Elan. Icahn said Biogen prevented any bidder from talking to Elan about anything unless they made a 'binding proposal.'

Icahn also said he is concerned by recent comments from the CEO that Biogen might make a large scale acquisition. Icahn said he would oppose any "toxic" transactions.

The slate of directors to be nominated by Mr. Icahn and his affiliates consists of Alexander J. Denner whose principal occupation is Managing Director of entities controlled by Mr. Icahn that manage private investment funds, Professor Anne B. Young, who is Julianne Dorn Professor of Neurology at Harvard Medical School and Chief, Neurology Service at Massachusetts General Hospital, and Professor Richard C. Mulligan, who is Mallinckrodt Professor of Genetics at Harvard Medical School, and Director of the Harvard Gene Therapy Initiative.

Icahn noted his affiliates own 12,435,904 shares of Biogen, or 4.24% of the outstanding stock. Icahn held 8,825,816 (3%) Biogen shares at the quarter ended 09/30/07.

Icahn is still below the 5% threshold which would require a 13D filing.

New York Times (NYT) Higher As Hedge Fund Group Seeks 4 Board Seats, Change Toward Digital Strategy

Shares of The New York Times Company (NYSE: NYT) are higher today after Firebrand/Harbinger announced plans to nominate four Class A directors for election at the Company's 2008 Annual Meeting which will be held on April 22.

Firebrand/Harbinger, LLC, a company formed by Firebrand Partners and Harbinger Capital Partners, together own approximately 4.9% of the outstanding common equity of The New York Times.

Firebrand/Harbinger said they are not pursuing a change in the dual class shareholder structure, but will focus on working with management and the Board for the benefit of all stakeholders.

In the letter Firebrand/Harbinger said, "There is nothing wrong with The New York Times Company that cannot be fixed with what is right with The New York Times." The group said, a renewed focus on the core assets and the redeployment of capital to expedite the acquisition of digital assets affords the greatest shareholder appreciation and creates the appropriate platform to compete in today's media landscape.

Firebrand/Harbinger said the current Board has not been effective in inspiring the requisite bold action this media environment demands. The group said their nominees bring deep expertise in capital allocation, Internet media and brand strategy.

In addition to Firebrand Partners Founder and CIO, Scott Galloway, the director nominees include: Allen Morgan, Managing Director at venture capital firm Mayfield Fund, whose investing practice focuses on internet media; Gregory Shove, a former executive at AOL and advisor to Firebrand Partners; and James Kohlberg, co-founder of private equity firm Kohlberg & Company.

The group wants to transform the New York Times from "a low growth company" into a "robust firm that is both the newspaper of record and the most trusted starting point on the Internet."

The 4.9% stake owned by Firebrand/Harbinger puts them just below the 5% threshold which would require the filling of a 13D.

Shares of The New York Times are up over 5% today.

Wattles Capital Discloses 6.5% Stake in Circuit City (CC)

In a 13D filing Tuesday, Mark Wattels/Wattles Capital disclosed a 6.5% stake (11,000,000 shares) in Circuit City Stores (NYSE: CC).

Wattels said he met with management and has had discussions with shareholders of the company. Wattles intend to continually evaluate and review the Issuer’s business affairs, financial position, future prospects and management, as well as conditions in the securities markets (including but not limited to the price of and market for the Shares) and general economic and industry conditions.

Large Comcast (CMCSA) Shareholder Is Calling For the Head of CEO Roberts

According to reports from Barron's, large Comcast (Nasdaq: CMCSA) (Nasdaq: CMCSK) shareholder, Chieftain Capital, wants CEO Brian Roberts ousted. The firm also wants the company to return more cash to shareholders through buybacks and dividends, and end the dual-class voting structure.

In the letter, Chieftain was critical of the stock performance, noting that the company's stock price is the same as it was in late 1998. Shares of Comcast are down over 40% over the past year.

The dual-class stock structure gives the Roberts family control of about 33% of the vote, while their economic ownership is just 1%.

In the letter, Chieftain said, "Returns on invested capital have been anemic, high-priced acquisitions have proven a waste of capital, capex has ballooned and free cash flow has consistently disappointed."

Chieftain owns 60.5 million shares of Comcast stock, or about 2%. They have been shareholders for five and a half years.

Link To Barron's Article

Icahn Has a Busy Day: BEAS, WCI, More...

Billionaire financier, Carl Icahn had a busy day today. Icahn's bet on BEA Systems (Nasdaq: BEAS) (13%), which looked like it was going nowhere fast, paid off big after the company was acquired by Oracle (Nasdaq: ORCL) for $19.375 per share in cash. The price was lower than the $21 per share BEA said they would start the bidding at, but it was higher than Oracle's original $17 bid - which BEA rejected. Icahn said he supports the deal.

Another one of Icahn's stocks, WCI Communities (NYSE: WCI), where he is Chairman, was down over 20% earlier today on bankruptcy fears. The stock spiked back into the green after Icahn, on CNBC, said he would not jump to that conclusion. WCI's latest bank waiver on the company's loans expires today. If the company is unable to negotiate new terms with its banks it may be in serious trouble.

On CNBC, Icahn also made some upbeat comments about one of his other stocks, Motorola Inc. (NYSE: MOT). Icahn said he is a great bull on the stock. Icahn said Motorola needs to separate the cell phone business. He said at current prices you get the cell phone business for nothing.

Another Icahn bet, Biogen Idec (Nasdaq: BIIB), is trading in the green today. Biogen shares were killed in December after the company completed its review of strategic alternatives without a sale. The stock dropped from about $76 to $54 after the news. It is currently trading at around $60.

On Fast Money yesterday, Icahn said he still has hope the company will eventually be sold.

Track market moving news on Carl Icahn Here. Premium member can set up e-mail alerts to be notifiled when there is new market moving news or an SEC filing from Icahn.

Breeden Capital Boosts Stake in Zale Corp (ZLC) to 17.66%

In an amended 13D filing this morning on Zale Corporation (NYSE: ZLC), Richard Breeden's Breeden Capital disclosed a 17.66% stake (7,875,839 shares) in the company. This is up from the 15.85% stake (7,070,839 shares) the firm disclosed in a recent filing.

In the firm's original 13D filing on the Zale's investment, Breeden said they have had conversations with the Company’s management, although the nature of those talks were not disclosed.

Breeden's has aggressively built up its stake in Zales. In the original filing in September, the firm showed a 3,784,639 shares position. That position now stands at 7,875,839 shares.

Large Unisys (UIS) Holder MMI Investments Urges The Company To Explore Options for Government Business

In an amended 13D filing today on Unisys Corporation (NYSE: UIS), 9.9% holder MMI Investments urged the company to move immediately to hire a banker and review of all available strategic alternatives, with a particular focus on the potential realization of the U.S. Government business through a sale, tax-free spin-off or subsidiary IPO.
MMI said the company's restructuring benefits are not enough to correct Unisys' dramatic undervaluation. The said the undervaluation is in large part because of flaws in Unisys’ strategic configuration.

MMI requested a meaningful response from Unisys on or before January 23rd, or they will consider possible alternatives available to them, including with respect to the upcoming annual meeting of stockholders.
Unisys confirmed they received the letter from MMI and said they are is in the process of evaluating it.

A Copy of the Letter:

Dear Members of the Board:

MMI Investments, L.P. presently owns 34,787,000 shares of Unisys, or approximately 9.9% of the outstanding stock. As one of Unisys’ largest stockholders for more than a year, MMI has supported the company’s restructuring efforts, but felt tremendous frustration with the seemingly continuous stream of management, operational and financial missteps that have characterized recent performance, obscuring otherwise impressive growth in EBITDA as a result of the restructuring and undermining the significant intrinsic value of Unisys’ U.S. Government business (i.e., federal, state and local). Moreover we are mystified by management and the board’s inaction in the face of Unisys’ ruinous stock price performance over the past year. We believe Wall Street’s utter rejection of Unisys stock is indicative that the restructuring benefits are not enough to correct Unisys’ dramatic undervaluation. We believe that Unisys has serious flaws in its strategic configuration, which impair stockholder value due to the taint of the secularly declining Technology business and obscure market recognition of the highly-valuable U.S. Government business. Therefore we believe it is crucial that Unisys move immediately to announce the engagement of an independent, qualified investment bank to perform a review of all available strategic alternatives, with a particular focus on the potential realization of the U.S. Government business through a sale, tax-free spin-off or subsidiary IPO. This assignment should include undertaking the prompt execution of whichever transaction or transactions will lead to maximizing stockholder value. A review without follow through is of no help.
Management and the board have ignored several of our recommendations as to how Unisys can improve its perception by Wall Street and conform to the most basic expectations for a public company, including guidance issuance, increased segment transparency and a reverse stock-split (to avoid the perils of sub-$5 stock trading price, e.g. high volatility, institutional holder restrictions, etc.). There has been no shortage of similar constructive suggestions by Wall Street research analysts, other investors and qualified investment bankers. Meanwhile Unisys management has produced a cavalcade of small failures to dampen investor enthusiasm, such as the ongoing use of contract labor, the dramatic weakness in Consulting & Systems Integration and the recently botched refinance. We believe that these slip-ups, and the regularity thereof, have effectively decimated any investor enthusiasm for a restructuring that has impressively driven EBITDA from approximately $212 million (including retirement plan expenses) in 2005, to an estimated $523 million in 2007 and with expectations for $663 million in 2008 (even despite the delayed 8% to 10% operating margin targets).1 In short, you’ve thrown an earnings party and no one has attended.
We believe this undervaluation is in large part because of flaws in Unisys’ strategic configuration. The damage done to stockholder value by the drag of Technology and the failure to unlock the value of the U.S. Government business are significant and must be addressed. We believe that Unisys’ need to demonstrate a commitment to stockholder value is pressing, and the maximization of the value in the U.S. Government business provides the best opportunity for improving stockholder value in the immediate term (following which the severability of Technology can be addressed). The analysis included herein assumes that the separation of roughly $1.5 billion in U.S. Government revenue (with EBITDA assumed to be in-line with the margins of comparable companies) could result in a stock price of approximately $8 to $12 assuming the U.S. Government business trades in-line with its peer group multiples and the remaining Commercial business trades at the low-end of its peer group multiples.

In our view, the best alternative would be an initial public offering of 19% of the shares of a subsidiary of Unisys comprising all of its U.S. Government services business. This would allow for the highest multiple business to have its value recognized, raise equity capital for the company at an attractive price and provide employees of that unit with financial incentives as owners. Doing so would also preserve flexibility, including the ability to further monetize the business through the public market, sell the business with an M&A control premium or eventually complete a tax free spin off of the balance of the subsidiary shares to Unisys stockholders.

This analysis cannot quantify the significant additional operating benefits of such a transaction. We believe that the government contracting industry will continue to experience significant consolidation. Without a fairly-valued equity currency, and with the capital constraints of the rest of Unisys’ business, the U.S. Government business cannot be expected to participate as an acquirer and therefore risks falling behind its peers competitively. The undervaluation of all of Unisys’ businesses, but particularly U.S. Government, also impedes Unisys’ ability to compensate its employees through equity incentives – particularly given the recently-adopted policy to increase 401k matching contributions funded with Unisys stock. By continuing to ignore stockholder value, Unisys is literally jeopardizing its employees’ retirements.

We have expended significant time and effort considering these issues and attempting to convey their gravity to management and the board. We do not publicize our frustration lightly and understand that the board may have discussed various alternatives from time to time, and concluded that the restructuring was the first priority. However we believe the time for patient observation of the restructuring plan (which management’s public statements suggest is close to completion) and silent consideration of options has long passed. The time has come for significant action from this board. Your inaction is threatening to cause permanent value destruction at Unisys. We request a meaningful response on or before January 23rd. Otherwise we will be compelled to consider all possible alternatives available to us, including with respect to the upcoming annual meeting of stockholders.

Sincerely,
Clay Lifflander

JANA-Led Investor Group Seeks CNET (CENT) Board Takeover

CNET Networks (Nasdaq: CNET) is fractionally higher this morning, following news that an invetor group, led by hedge fund JANA Partners, nominate seven people for election to the company's Board of Directors.

JANA and its partners currently beneficially own approximately 8% of CNET's voting stock and JANA has an additional approximately 8% non-voting economic interest in CNET.

JANA has collaborated with Paul Gardi of Alex Interactive Media and venture capital firm Spark Capital. JANA also said hedge fund Sandell Asset Management, which owns a 5% non-voting interest, has agreed to support its effort.

JANA Managing Partner Barry Rosenstein said, "This effort is about taking an underperforming company and increasing shareholder value by building on its top-notch editorial talent and premier internet assets. Together with Paul Gardi and Spark Capital, we have assembled a group of nominees we believe has the technical skills and business experience to reverse CNET's ongoing underperformance and start delivering value for shareholders."

In response to the announcement, CNet said they have reviewed JANA Partners' proposal and determined that it is improper under the Company's by-laws.

Large 99 Cents Only Stores (NDN) Holder Akre Capital Suggests Reorganization and Buybacks

In a 13D filing on 99 Cents Only Stores (NYSE: NDN), Akre Capital disclosed a 13.4% stake (9,392,329 shares) in the company and disclosed a letter suggesting the company consider alternatives to improve shareholder value including: discontinuing certain business operations, repurchasing stock, and refocusing the business on maximizing profitability versus expansion.
Akre Capital changed their filing status from 13G 'passive' to 13D due to their activist stance.

Akre Capital said they've been shareholder of the company for approximately three years.

A Copy of the Letter:

Dear Director:

We are contacting you in your capacity as a Director of 99 Cents Only Stores,Inc. Akre Capital Management, LLC and certain of its affiliates, own more than13% of the company's outstanding shares. We urge you to consider the contents of this letter carefully.

Akre Capital has been a shareholder of the company for approximately three years. We are well informed, having followed the company closely and visited more than 50 stores in four states. We see significant potential for operating and capital improvements, but we are increasingly concerned about the ability of the current management team to deliver on that potential.

We believe that management is charged with two primary responsibilities: 1)restoring the company to a healthy level of profitability, and 2) making prudent capital investment decisions with the company's existing asset base, operating cash flow, and balance sheet reserves. So far, after nearly three years of tenure, management's record is poor on both of these accounts.

1) Operating profits have declined each year, and the company is now near break even with no evidence of a rebound. Further, despite repeated requests from investors, management is unable or unwilling to produce a plan to increase margin and profit. They have not quantified key margin opportunities, provided a timetable with major milestones, or identified long term financial goals.

2) Management has made several important strategic and capital investment decisions for the company, including staying in Texas, accelerating store growth, and retaining excess cash. To us, these decisions appear misguided.

Management has made decisions that complicate an already difficult turnaround by growing sales volume over a stressed distribution, information, and management infrastructure. To achieve this growth, management is foregoing low risk investment in deeply discounted share repurchases in favor of investment in stores and markets with unknown economics.

In contrast, a conventional turnaround plan prescribes halting all growth, exiting unprofitable products and divisions, and focusing full attention on restoring profitability to the remaining business. Balance sheet liquidity is deployed by repurchasing depressed stock, and growth resumes when it can be funded out of restored operating cash flow.

This time-tested conventional plan seems ideal for the company, so management should have a compelling argument for why they have chosen an alternative and more speculative plan. Despite repeated requests from investors, management is unable or unwilling to explain its reasoning in quantifiable terms. Management's responses point to anecdotal evidence instead of rigorous financial analysis, leaving the impression that analysis was minimal, and that other viable courses of action have never been seriously considered.

We are not alone in making these observations. Listening to recent quarterly conference calls reveals similar concerns from other investors. In addition,the company's stock is trading near book value implying that investors expect value will be destroyed. This is effectively a "no confidence" vote in management and their strategy.

It is essential that confidence in management be restored. Shareholder concerns are well founded, and need to be addressed promptly. The company has too much potential to be allowed to languish any longer. If this management team is up to the challenge, they need to begin executing and communicating clear and logical thinking about creating shareholder value. As such, we have four specific requests:

1) We request that management and the Board formally re-evaluate their key decisions - to stay in Texas, open new stores, and retain excess cash - with thorough financial analysis and the goal of maximizing intrinsic value per share. Management has been unable to explain these decisions to shareholders which leads us to question the rigor of the oversight provided by the Board. Further, these decisions should be re-evaluated given the lack of operating progress to date, and the increased attractiveness of repurchasing stock at the current price. In fact, it is hard for us to envision any scenario where investing in unproven new stores is a better use of resources than repurchasing company stock priced near book value.

2) We request that the company provide the investment community with adequate explanation and financial disclosure to legitimize their key strategic and capital investment decisions noted above.

3) We request that the company provide the investment community with its turnaround plan, including specific operational and financial objectives, clear benchmarks, and a defined timetable.

4) We request that management (i) commit to being held accountable to this turnaround plan and (ii) clarify what alternative course(s) of action will be pursued to create value if the plan stalls.

We believe that these requests are reasonable, and that this is information that any business owner should expect from the individuals appointed to oversee that business. We assume that management can fulfill our requests at a special event held soon after the December quarter results are released.

We await your response.

Sincerely,

Charles T. Akre

Brian E. Macauley

CNBC Faber Notes Letter To Clients From Ackman's Pershing Square on Target (TGT)

On CNBC, David Faber noted a recent letter that William Ackman's Pershing Square Capital sent to investors in their Pershing Square IV fund related to the fund's Target (NYSE: TGT) investment.

Pershing Square owns a nearly 10% stake in Target, mostly through options.

Faber noted that Pershing Square is significantly underwater on the position due to Target's weak stock performance.

In the letter, Ackman said they believe the stock is significantly undervalued. Ackmam supports the company's decision to postpone the sale of the receivables unit due to the weak credit markets. Ackman said the stock could go to $120 in three years if the company completes the stock buyback, sells the credit card unit and explores a potential real estate transaction.