Bill Ackman of Pershing Square Capital Management has been right some many times this year it’s scary.

He predicted the demise of the monoline bond-insurers, such as MBIA (MBI) and Ambac (ABK), well before the credit crunch really hit the economy. Ackman began shorting shares of MBIA north of $60 and Ambac north of $75; MBI now trades at $6 and Ambac at 76 cents.

Ackman also owned 25% of Longs Drugs (LDG) back in mid-September. Within three weeks of Pershing Square’s, purchase, Longs was bought out for a nice 30% premium.

So when Pershing Square, an $8 billion-plus activist hedge fund that has had returns of 40% or more over the past two years, filed its latest equity holdings, we paid close attention.

Pershing Square's top equity position is in shares of Target (TGT). The fund controls just under 20 million common shares and controls another 80 million shares vis-a-vis long call leaps.

Since Target owns 85% of its real estate, the highest percentage out of any another big box retailers, Pershing Square is suggesting a tax-free spin of a Target Inflation Protected REIT, or TIP REIT, in which Target will spin off 20% of its land to form a new company. According to Pershing Square, “REITs, private market ground leases, and inflation-produced securities all trade at much higher valuation multiples than Target’s multiple, at only 6.0x EV/EBITDA, based on a $40 share price.” With shares of Target recently at $31.10, it's trading at 6.15 times EV/EBITDA.

Ackman believes that this transaction creates “immense and instant value because 22% of Target’s current EBITDA will be valued at significantly higher multiple than where Target trades today.” He believes that shares of Target are worth $80 to $120 after the spinoff.

Pershing Square’s second-largest holdings is EMC (EMC). It owns 59 million shares, which equates to about 3% of the company.

EMC is a data storage company with a market cap of $20 billion, $5.9 billion in cash ($2.88 per share) and $3.45 billion in debt, which gives it a total debt/total equity ratio of 0.3. EMC still has its 86% stake in VMware (VMW), once you back out shares of VMware in EMC’s valuation; EMC now trades with a forward P/E of 7.5.

Pershing Square also has a massive stake in Wachovia (WB) of about 96 million shares, which equates to about 4.5% of the company. The fund started buying shares after Wachovia announced a bank subsidiary sale to Citigroup (C) for $2.1 billion. Ackman thought this was a horrible deal for shareholders and started accumulating his stake.

On Oct. 2, Ackman was proven right again, as Wells Fargo (WFC) made an unsolicited offer of 0.1991 shares of Wells for Wachovia ($6.88 per share). Wells estimates about $5 billion in annual expense synergies.

Wachovia, which was recently trading at $4.95, has a stated book value of $18.8.

Other interesting Pershing Square positions include shares of Dr. Pepper Snapple Group (DPS), Wendy’s (WEN) and MasterCard (MA).

Posted on Nov. 25, 2008