Target Corporation: Report on Long-term Financing Policy and Capital Structure with an Acquisition Analysis
Introduction
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.
Compared to its rivals Target has not diversified in the retail industry, which makes the company vulnerable to changing shopping patterns and economic downturns.
Target has many competitors in the market, and the level of competition is highly intense. Some of its main rivals are Wal-Mart stores, Home Depot and Costco Wholesale Corp. All of them produce similar products as well as offer almost the same services to their consumers. Naturally, the organization would need a strategy that helps it to stand out and to distinguish it from its competitors, thus, Target 's positioning was based on more than just pricing; it combined quality and style. This was the differentiation strategy that have always been applied since the launch of the organization.
Target stores, inc.is a sister company of Dayton Hudson Corporation and started in the year 1962 the same year as two other large retail stores Wal-mart and Kmart. Target has always operated with the motto “ Expect More and Pay Less” target is the third in the big three in U.S. falling behind Wal-Mart and Kmart.a major part of target's success comes from its ability to bundle bargain prices with fashionable name brand merchandise with excellent customer service. Dayton’s department store started looking into Target as a discount chain in the year of 1962 when the company saw a rising in public demand for lower priced merchandise in a family friendly and convenient environment. The name target along with the bulls eye logo were selected for the company's visual impact also to show that target aims at offering
Target must compete vigorously and fairly in the marketplace using our independent judgment to make the best decisions for the Company.
Year over year, Target Corp. has been able to grow revenues from $51.3B to $57.9B. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 69.64% to 69.29%. This was a driver that led to a bottom line growth from $2.4B to $2.8B. Target outperformed (corporate governance quotient) 85.5 % of S&P 500 companies and 97.7 % of discount retail stores. The corporate governance quotient incorporates the values of transparency, accountability, integrity, and responsibility towards maximizing shareholder value. Yahoo analysts opinions mean recommendation is currently a 2.2, indicating moderate buy to hold (a 1.0 is a strong buy and a 5.0 is a strong sell).
In order for Target to have been successful, first and foremost, the retailer should have known that they would not be able to beat their competitor, Walmart, in a price war. That alone, is a losing battle. So, a higher quality of products, fewer locations, and a better understanding of Canadian tastes could have propelled the retailer into establishing, for the long term, a profitable global presence with our Canadian neighbors.
Target is also a company that is built on ethics. With integrity instilled in all of their team members, everyone helps to uphold Target’s great reputation and maintain their morals of honesty and family. Another big part of Target’s company culture is their focus on community service. After working for Target, one is truly able to understand the meaning of giving back. At Target, team members dedicate their volunteer hours to work with schools, nonprofit organizations, charities etc. to make a difference in the world.
Target Corporation's strategic structure plans are continuing staffing the organization and assemble a well-talented management team. Also, continue recruiting and retaining employees with the needed experience. Another option is to acquire, develop and strengthen resources and capabilities in performing critical value chain activities to match changing market conditions and customer expectations. Target Corporation needs to explore multidivisional or matrix organization structure to facilitate strategy execution, delegate authority, and managing external relationships (Thompson, Peteraf, Gamble and Strickland, 2016).
Opportunities: Target has an opportunity to leverage its strength to overcome some of its weakness.
Berk, J., & DeMarzo, P. (2011). Corporate finance: The core, second edition. (2nd ed.). Boston, MA: Prentice Hall.
In December 2013, Target was attacked by a cyber-attack due to a data breach. Target is a widely known retailer that has millions of consumers flocking every day to the retailer to partake in the stores wonders. The Target Data Breach is now known as the largest data breach/attack surpassing the TJX data breach in 2007. “The second-biggest attack struck TJX Companies, the parent company of TJMaxx and Marshall’s, which said in 2007 that about 45 million credit cards and debit cards had been compromised.” (Timberg, Yang, & Tsukayama, 2013) The data breach occurred to Target was a strong swift kick to the guts to not only the retailer/corporation, but to employees and consumers. The December 2013 data breach, exposed Target in a way that many would not expect to see and happen to any major retailer/corporation.
Target Corporation has indicated a significant increase in the number of years it has been operational. The company experienced important changes in growth when it transformed from a regional store to a national retailer.
Target bank is called the Target National Bank. It is owned by the Target Corporations itself and all the receivables go into Target has approximately 1,600 million dollars worth of lines of credits from twenty five different banks, approximately half the worth of the line is used and is due back for payment June 2005, with an extension all the way up to June 2006. The other half of the payment is due June 2008. The expected long term rate of securities rate for October 31 2004 was 8.5 %.
1. The Discount Department Store. Target prefers to be called as the latter instead of just department store. Expect more, pay less. With this tagline, the customers expect to purchase more items and pay the least amount possible. Not like other retail industries like its competitor Kmart and Wal-Mart, Target maintains retail value in terms of product offerings. They are known in their designer’s items in clothes, exclusive beauty products, categorized and functional goods, and seasonal offerings. It also sells the greatest number of gift cards among its rival business.
The Target Corporation formerly known as “The Dayton Dry Goods Company” is a major retailing company that was founded in 1902 in Minneapolis, Minnesota by George Draper Dayton. It is ranked the second largest discount retailer in the United States and ranked thirty- sixth on the Fortune 500 as of 2013. The Target Corporation has been serving this nation with the best price possible goods since their expansion from “Dayton” and is continuously winning the hearts of consumers with their dedication and service. A phenomenal merchandising strategy and cross channeling has enabled this upscale discounter to serve their purpose of customer loyalty and fulfill their promise of “Expect more and Pay less”.