Corporate Finance, Merger and Acquisition, potential deal, Costco acquire Target. MBA Project

1. M&A
PITCHBOOK
Date : 12/10/2014

2. 2M&A PITCHBOOK – COSTCO/TARGET MERGER 12/10/2014
Background
Costco acquires Target in stock exchange deal valued at $56 billion

3. 3M&A PITCHBOOK – COSTCO/TARGET MERGER 12/10/2014
Termsheet
Purchase Price
Total Deal Size ~$56B
Implied Price per Share $88.39
ResultingCOST Ownership of TGT 100%
TransactionFees $224MM
Exchange Ratio 0.62
Consideration
100% stock
COST will give TGT shareholders .62 shares of newly
issued COST shares for every 1 share of TGT
outstanding.This will be classifiedas a 368 "B"
reorganizationfor tax purposes.
Number of Shares to be issued 394.915 million
Tax Considerations Section 368 "B" Reverse Triangular Merger
Synergy Value
$1B increase in Net Income from increasing ROE
from 9.4% to 14%
($224M) in transactioncosts
Transaction Process Requirements
TGT and COST shareholders must approve the deal
Social Issues
TGT becomes a subsidiary of COST
TGT and COST executives will remain intact
Maintain both headquarters
TGT will retain its current name
TGT workforce will be reduced by 5% for overlaping
functions

4. 412/10/2014
Retail industry overview
Structure
- Consolidated
- Highly Competitive
- High volume and Low margins
Trends
- Channel fragmentation
- Move to supermarket category
- Global competition
- Online shopping
Industry Estimates * High Low Mean Median
EPS growth rate 15.90% 5.65% 10.18% 9.35%
Revenue Growth rate 7.24% (2.54%) 3.20% 1.99%
Net income growth 1.15% (35.86%) (8.68%) (7.27%)
Keys to success
- Superior supply chain and logistics
- Customer service orientation
- Attractive product display
- Adapt to demand variation
* Estimates for peer group – See Exhibit 1. Peers include Costco, Target, Dollar General, Family Dollar Stores, Wal-Mart, Dollar Tree, Kohl’s, Bed Bath & Beyond

5. 5
12/10/2014
Costco Wholesale
Capital Structure ($17.8 billion)
* 3 months ending Nov 1, 2014
Ownership by type (436.76M shares out)
Top 5 holders
Share Price = $142.63
(on 12/5/2014)
Total Debt
30%
Total Common
Equity
70%
Top 5 owners
The Vanguard Group 5.18%
Capital World investors 4.58%
State Street Corp 4.28%
FMR LLC 3.28%
Black Rock Trust 2.68%
Institutions
75%
Individuals/Ins
iders
0.19%
State Owned
Shares
0%
State Owned
Shares
0.07%

6. 6
12/10/2014
Target Corp.
Capital Structure ($30.7 billion)
Total Debt
47%
Total
Common
Equity
53%
* 3 months ending Nov 1, 2014
Institutions
90%
Individuals/Insi
ders
0.19%
Employees
5%
State Owned
Shares
0.07%
Public and
Other
5%
Ownership by type (636,964,000 shares out)
State Street Global* 9.50%
The Vanguard Group* 5.30%
Franklin Resources Inc* 5.51%
Target Corp (401K) plan 5.03%
Blackrock Inc* 4.92%
Top 5 holders
Share Price = $73.66 ( on 12/5/2014)
*also shareholders in Costco
Note 70% of Target stock owned by
a current investor in Costco.

7. 712/10/2014
Why is Target a good target??
Source CapitalIQ
See Exhibit2a, 2b
Target Corporation operates general merchandise stores in the United
States and Canada, offering household essentials, food and pet supplies.
See Exhibit 2(a) for details
Target Corp. is a good acquisition target for the following reasons :
- Strong revenues in excess of $73 billion
- Strong brand name with a higher end clientele is an attractive brand extension for acquirer
- Strong customer service and quality management
- 1,801 stores in U.S.; 133 stores in Canada; 37 distribution centers in U.S.; 3 distribution centers
in Canada; Global locations in India and Canada;
- Online retailing
- 366,000 employees
However, this historically strong company is showing signs of weakening:
- Target is currently performing below-average to average relative to its industry comparables
(details follow).
- Historically, stock has tracked S&P500, but is currently lagging S&P500 by ~20-30%
- EBIDTA and EPS growth rate (CAGR) is declining for the past 5 years unlike its compititiors.

8. 8M&A PITCHBOOK
1/23/2013
Target Stock appears undervalued.
Costco up 290% S&P up 170% TGT up 140% => recent underperformance
Stock performance since 2005
Target deviating from
tracking with S&P 500

9. 912/10/2014
Selected financials: Target underperforming!
Source CapitalIQ
See Exhibit3 (d )

10. 1012/10/2014
Selected financials: Target underperforming!
Source CapitalIQ
See Exhibit3 (f)
(4.0) (2.0) 0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0
Costco Wholesale
Wal-Mart Stores Inc.
Dollar General
Family Dollar Stores Inc.
Dollar Tree, Inc.
Kohl's Corp.
Bed Bath & Beyond Inc.
Target Corp.
EBITDA – 5yr CAGR
0.0 2.0 4.0 6.0 8.0 10.0 12.0
Costco Wholesale
Wal-Mart Stores Inc.
Dollar General
Family Dollar Stores Inc.
Dollar Tree, Inc.
Kohl's Corp.
Bed Bath & Beyond Inc.
Target Corp.
Total Revenue 5yr CAGR
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0
Costco Wholesale
Wal-Mart Stores Inc.
Dollar General
Family Dollar Stores Inc.
Dollar Tree, Inc.
Kohl's Corp.
Bed Bath & Beyond Inc.
Target Corp.
Net Income Margin LTM
(10.0) (5.0) 0.0 5.0 10.0 15.0 20.0 25.0 30.0
Costco Wholesale
Wal-Mart Stores Inc.
Dollar General
Family Dollar Stores Inc.
Dollar Tree, Inc.
Kohl's Corp.
Bed Bath & Beyond Inc.
Target Corp.
EPS 5 Yr CAGR

11. 11Washington University Olin Business School - PMBA34 12/10/2014
Valuation #1 of Target via Market Multiples
* See Exhibit3a
Market Multiples*
Price Range : $34.33 to $129.15
Implied
Multiples Target LTM
Implied
Enterprise
Value
ImpliedEquity
Value
Price Per
shareMarket Value Low Median High
To Revenue 0.5x 0.9x 1.3x $73,703 $66,333 $52,780.7 $82.86
To EBIDTA 6.2x 10.1x 14.3x $5,720 $57,994 $44,442 $69.77
Details
ImpliedEquity Value Price Per share
Low Median High Low Median High
To Revenue $23,300 $52,781 $82,262 $36.58 $82.86 $129.15
To EBIDTA $21,865 $44,442 $68,421 $34.33 $69.77 $107.42

12. 12
12/10/2014
Valuation #2 of Target via Comparable Transactions
* See Exhibit 3a
Comparable Transactions*
Price Range : $25.01 to $138.61
Implied
Multiples Target LTM
Implied
Enterprise
Value
ImpliedEquity
Value
Price Per
shareMarket Value Low Median High
To Revenue 0.4x 0.9x 1.3x 73,703 66,333 52,781 $82.86
To EBIDTA 7.2x 9.2x 11.9x 5,720 52,614 39,062 $61.33
To EBIT 11.3x 13.2x 17.8x 5,720 75,687 62,135 $97.55
Details
ImpliedEquity Value Price Per share
Low Median High Low Median High
To Revenue $15,929 $52,781 $82,262 $25.01 $82.86 $129.15
To EBIDTA $27,553 $39,062 $54,625 $43.26 $61.33 $85.76
To EBIT $51,182 $62,135 $88,290 $80.35 $97.55 $138.61

13. 13Washington University Olin Business School - PMBA34 12/10/2014
Valuation #3 of Target via DCF
* See Exhibit4a
DCF Model - Assumptions
Historical year ending February 1, Projected year ending February 1,
2012 2013 2014 2015 2016 2017 2018 2019
Sales growth NA 4.92% -0.96% 1.98% 2.23% 2.49% 2.74% 3.00%
Cost of goods sold (as a % sales) 69.14% 69.40% 69.93% 69.93% 69.93% 69.93% 69.93% 69.93%
SG&A (as a % sales) 20.13% 20.30% 21.08% 21.08% 21.08% 21.08% 21.08% 21.08%
CapEx (as a % sales) NA 4.47% 4.76% 4.61% 4.61% 4.61% 4.61% 4.61%
Depreciation (as a % of CapEx) NA 64.69% 63.65% 64.17% 73.13% 82.09% 91.04% 100.00%
Additions to intangibles (amount) NA 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Amortization (amount) NA 22.00 25.00 23.50 23.50 23.50 23.50 23.50
Using the DCF model we carried out analysis in Low , base and high growth environment by changing :
- Terminal rate
- WACC
- EBITA

14. 14
12/10/2014
Valuation via DCF (cont.)
* See Exhibit4a, 4b
DCF Model
- Share price under Low , Base and High growth forecasts
$61.86
$71.25
$76.89
$66.98
$77.04
$83.08
$60.00
$65.00
$70.00
$75.00
$80.00
$85.00
SharePrice
LOW BASE HIGH
Min Price Max Price
Price Range : $61.86 to $83.08

15. 15Washington University Olin Business School - PMBA34 12/10/2014
Target Valuation Summary and Offer
$0.00
$20.00
$40.00
$60.00
$80.00
$100.00
$120.00
$140.00
$160.00
Multiples Transactions DCF
$73.66 current price
$88.39 initial offer
$107.42 upper offer

16. 16
12/10/2014
Synergy from Costco enabling Target to meet its potential!
FOR EXAMPLE:
• Target is underperforming peers in ROE, ROA, and ROIC
• Wal-Mart (combination of Sam’s Club and Wal-Mart) demonstrates
a company combining warehouse and retail model.
• If Costco can raise the ROE of the Target “subsidiary” from an equivalent of
9.4% to 14%, that is worth ~$1B/year increase in NET INCOME per year.

17. 17
12/10/2014
Bidding Strategy and Deal Structure
• Tax-Free Acquisition (stock-for-stock; Section 368 “B” Reorganization)
• Exchange Ratio: 0.62 (a 20% premium at pre-announcement stock prices)
• Target at least 80% ownership of Target as a subsidiary to gain tax
advantage.
• Maintain former Costco shareholders in majority: 47% of shareholders post
merger will be former Target shareholders.
• Costco will take on Target’s debt and liabilities.
• Anticipate a friendly merger because of significant common ownership.
• Target Management: remain intact leading Target subsidiary.

18. 18
12/10/2014
Pro Forma Combined
Costco Wholesale Corporation (COST) Acquisition of Target Corp. (TGT)
Estimated balance sheet impact of 95.68 per share offer (100.0% Stock, 0.0% Cash)
(USD in millions)
Costco Target Adjustment Pro Forma
TGT (Decrease) Increase Combined
Cash 7,315.0 780.0 (244.8) 7,850.2
Other current assets 10,273.0 13,058.0 23,331.0
PP&E 14,830.0 30,886.0 4,482.4 50,198.4
Goodwill 0.0 0.0 0.0 34,541.3 34,541.3
Other intangibles 0.0 0.0 12,102.5 12,102.5
Other long-term assets 606.0 1,737.0 2,343.0
Total Assets 33,024.0 46,461.0 130,366.4
Current liabilities 14,405.0 13,030.0 27,435.0
Debt 5,286.0 14,332.0 0.0 19,618.0
Other liabilities 818.0 2,726.0 6,302.2 9,846.2
Preferred stock 0.0 0.0 0.0
Noncontrolling interest 212.0 0.0 212.0
Common equity to parent 12,303.0 16,373.0 (16,617.8) 61,196.9 73,255.1
Total Liabilities & Equity 33,024.0 46,461.0 130,366.4
Parity check 0.000 0.000 0.000
Total debt 5,286.0 14,332.0 19,618.0
Total capitalization 17,801.0 30,705.0 93,085.1
Total debt / Total capitalization 29.7% 46.7% 21.1%
LTM EBITDA 4,249.0 5,720.0 9,969.0
Total debt / LTM EBITDA 1.2x 2.5x 2.0x

19. 19
12/10/2014
Accretion/Dilution Analysis
• 100% Stock offer…no additional debt assumed by combined entity
• Based on 70% of the estimated synergies expected from the merger
• Based on 30% Premium which is midpoint of premium range (20 %– 40%)
• Deal results in accretive EPS for shareholders
• Qualify for Section 368 Reorganization
Source CapitalIQ
See Exhibit6a & 6b
Costco Wholesale Corporation Acquisition of Target Corp.
Summary impact of 95.68 per share offer (100.0% Stock, 0.0% Cash)
Credit Statistics EPS Accretion / (Dilution) - %
Debt / LTM EBITDA FY 2015 FY 2016 FY 2017
0.0% 8.1x 0.0% 15.1% 27.5% 40.0%
10.0% 7.5x 10.0% 12.5% 23.0% 33.7%
Offer Price 20.0% 6.9x Offer Price 20.0% 10.3% 19.3% 28.5%
95.68 30.0% 6.3x 95.68 30.0% 8.5% 16.2% 24.0%
40.0% 5.7x 40.0% 6.9% 13.5% 20.1%
% Stock 50.0% 5.0x % Stock 50.0% 5.5% 11.1% 16.8%
60.0% 4.4x 60.0% 4.3% 9.1% 13.8%
70.0% 3.8x 70.0% 3.2% 7.2% 11.2%
80.0% 3.2x 80.0% 2.2% 5.6% 8.9%
90.0% 2.6x 90.0% 1.4% 4.2% 6.8%
100.0% 2.0x 100.0% 0.6% 2.8% 4.9%
Max Debt: 2.95x

20. 20
12/10/2014
Takeover Defenses
* 3 months ending Nov 1, 2014
Summary of Defenses:
Shareholder Meetings, Poison Pill & Voting
- Blank Check Preferred Stock
- Broker Non-Votes Allowed on Discretionary Items
- Secret Ballot Voting
- Poison Pill (expired 9/26/2006…none active)

21. 21
12/10/2014
Risks associated with the Transaction
- Regulatory approval may be a hurdle
- International expansion of Target in Canada
- Creating enough synergies to cover premium paid
- Integrating Costco’s warehouse efficiency model into
consumer retail
- Will Target accommodate. May be a hostile response.
- Expanding Target grocery sales further
- E-Tailing still a threat and expanding. How to improve
online sales

22. 22
12/10/2014
THANK YOU
Professor Armando Gomes
&
M&A Class
Eric Haupfear Suhel Shah Tim Moore William Singleton Mohammad Alsabeeh

23. 2312/10/2014
Exhibit
Selected Retailers - Key comps
(All figures in USD millions) Last 12 Months (LTM) NTM
Company Name Market cap LT Net debt TEV Total revenue Gross Margin EBITA Margin Revenue Growth
Growth rate
Est
Costco Wholesale Corporation
(NasdaqGS:COST)
62,709.4 (2,029.0) 60,892.4 112,640.0 12.6% 3.8% 7.12% 10.96%
Dollar General Corporation (NYSE:DG) 20,696.7 2,553.1 23,249.8 18,464.5 30.7% 11.3% 7.24% 15.55%
Family Dollar Stores Inc. (NYSE:FDO) 9,122.9 351.8 9,474.7 10,489.3 33.8% 7.5% 0.94% 6.95%
Wal-Mart Stores Inc. (NYSE:WMT) 271,134.7 49,112.0 325,190.7 483,792.0 24.8% 7.4% 1.99% 5.65%
Dollar Tree, Inc. (NasdaqGS:DLTR) 14,068.8 349.4 14,418.2 8,361.5 35.2% 14.7% 6.50% 15.90%
Kohl's Corp. (NYSE:KSS) 11,526.6 4,157.0 15,683.6 18,785.0 36.5% 13.5% (2.54%) 9.63%
Bed Bath & Beyond Inc. (NasdaqGS:BBBY) 13,393.7 213.4 13,607.1 11,669.8 39.3% 15.4% 1.13% 7.73%
Target Corp. (NYSE:TGT) 46,918.8 13,552.0 60,470.8 73,703.0 28.8% 7.8% (0.14%) 9.06%
Industry Estimates High Low Mean Median
EPS growth rate 15.90% 5.65% 10.18% 9.35%
Revenue Growth rate 7.24% (2.54%) 3.20% 1.99%
Net income growth 1.15% (35.86%) (8.68%) (7.27%)
*Source CapitalIQ
Exhibit 1 : Key Industry Comps and Estimates

24. 2412/10/2014
Exhibit
Exhibit 2a : Key Financial data Target Corp.
* Source CapitalIQ
Target Corp. (NYSE:TGT)
General Merchandise Stores Employees: 366,000 Incorporated: 1902 in Minnesota, US S&P Issuer Credit Rating FC
www.targetcorp.com
Target Corporation operates general merchandise stores in the United States and Canada. It offers household
essentials, including pharmacy, beauty, personal care, baby care, cleaning, and paper products; music, movies,
books, computer software, sporting goods, and toys, as well as electronics that consist of video game hardware and
software; apparel and accessories, such as apparel for women, men, boys, girls, toddlers, infants, and newborns, as
well as intimate apparel, jewelry, accessories, and shoes. The company also provides food and pet supplies,
including
dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce, and pet supplies; and home
furnishings and décor, such as furniture, lighting, kitchenware etc

25. 2512/10/2014
Exhibit
Exhibit 2b: Key Financial data Target Corp.
Target Corp (TGT) - Key
Financials
For the Fiscal Period
Ending 12 months
Jan-29-2011A
12 months
Jan-28-2012A
12 months
Feb-02-2013A
12 months
Feb-01-2014A
LTM²
12 months
Nov-01-2014A
12 months†
Jan-31-2015E
12 months
Jan-31-2016E
12 months
Jan-31-2017E
Total Revenue 67,390.0 69,865.0 73,301.0 72,596.0 73,703.0 74,479.95 76,282.74 78,727.55
Growth Over Prior Year 3.1% 3.7% 4.9% (1.0%) (0.1%) 2.55% 2.42% 3.20%
Gross Profit 20,805.0 21,559.0 22,427.0 21,827.0 21,197.0 - - -
Margin % 30.9% 30.9% 30.6% 30.1% 28.8% - - -
EBITDA 7,336.0 7,496.0 7,550.0 6,527.0 5,720.0 6,224.35 6,863.41 7,284.53
Margin % 10.9% 10.7% 10.3% 9.0% 7.8% 8.36% 9.00% 9.25%
EBIT 5,252.0 5,365.0 5,408.0 4,304.0 3,354.0 - - -
Margin % 7.8% 7.7% 7.4% 5.9% 4.6% - - -
Earnings from Cont. Ops. 2,920.0 2,929.0 2,999.0 1,971.0 1,524.0 - - -
Margin % 4.3% 4.2% 4.1% 2.7% 2.1% - - -
Net Income 2,920.0 2,929.0 2,999.0 1,971.0 1,524.0 - - -
Margin % 4.3% 4.2% 4.1% 2.7% 2.1% - - -
Diluted EPS Excl. Extra Items³ 4.0 4.28 4.52 3.07 2.38 3.24 3.88 4.36
Growth Over Prior Year 21.2% 7.0% 5.6% (32.1%) (36.3%) 2.39% 19.78% 12.33%
Same Store Sales Growth % 2.1% 3.0% 2.7% (0.4%) NA - - -
* Source CapitalIQ

26. 2612/10/2014
Exhibit
Exhibit 3(a) : Valuation for Target Corp. * Source CapitalIQ
Valuation of TARGETCorp.
Target TGT
Shares Outstanding 636.964
Total Debt (14,332.0)
Cash and Equivalents 780
Stock Price (12/5/14) 73.66
COMPARABLE COMPANY ANALYSIS ( Using Multiples)
Implied
Multiples Target LTM Implied
Enterprise Value
Implied Equity
Value
Price Per
shareMarket Value Low Median High
To Revenue 0.5x 0.9x 1.3x $73,703 $66,333 $52,780.7 $82.86
To EBIDTA 6.2x 10.1x 14.3x $5,720 $57,994 $44,442 $69.77
Details
Implied Equity Value Price Per share
Low Median High Low Median High
To Revenue $23,300 $52,781 $82,262 $36.58 $82.86 $129.15
To EBIDTA $21,865 $44,442 $68,421 $34.33 $69.77 $107.42
M&A TRANSACTION COMPARABLES
Implied
Multiples Target LTM Implied
Enterprise Value
Implied Equity
Value
Price Per
shareMarket Value Low Median High
To Revenue 0.4x 0.9x 1.3x 73,703 66,333 52,781 $82.86
To EBIDTA 7.2x 9.2x 11.9x 5,720 52,614 39,062 $61.33
To EBIT 11.3x 13.2x 17.8x 5,720 75,687 62,135 $97.55
Details
Implied Equity Value Price Per share
Low Median High Low Median High
To Revenue $15,929 $52,781 $82,262 $25.01 $82.86 $129.15
To EBIDTA $27,553 $39,062 $54,625 $43.26 $61.33 $85.76
To EBIT $51,182 $62,135 $88,290 $80.35 $97.55 $138.61

27. 2712/10/2014
Exhibit
Exhibit 3(b) : Valuation for Target Corp. * Source CapitalIQ
M&A TRANSACTION COMPARABLES
Implied Equity Value/ Implied Enterprise Value/
Buyer Target
Target
Share
Price
Announce
Date Close Date
Gross
Transactio
n Value
Net
Transactio
n Value
Offer Per
Share % Cash % Stock
Implied
Equity
Value
Book
Value
Net
Income
Implied
Enterprise
Value EBIT EBITDA Revenue
Clayton, Dubilier & Rice, Inc.B&M Retail Limited NA 12/3/2012 2/15/2013 931.2 869.5 NA 100.0% 0.0% 1,550.1 9.1x 25.4x 1,489.6 17.8x NA 1.3x
Canada Pension Plan Investment Board; Ares Corporate Opportunities Fund III, L.P.; Ares Private Equity Group99 Cents only Stores LLC20.49 10/11/2011 1/13/2012 1,580.4 1,366.1 22.00 100.0% 0.0% 1,561.6 2.2x 20.2x 1,366.1 11.3x 9.2x 0.9x
Goldman Sachs Group, Merchant Banking Division; KKR & Co. L.P.; Citigroup Private Equity LP; KKR 2006 Fund, L.P.Dollar General Corporation16.78 3/11/2007 7/6/2007 7,224.0 7,004.7 22.00 100.0% 0.0% 6,878.5 3.9x 49.9x 7,004.7 13.0x 9.5x 0.8x
Federated Department Stores Inc. (nka:Macy's, Inc.)May Department Stores Co.35.35 2/27/2005 8/30/2005 16,709.6 16,647.6 35.35 50.2% 49.8% 10,323.6 2.3x 20.3x 16,647.6 13.5x 8.9x 1.2x
Kmart Holding Corporation (nka:Sears Holdings Corporation)Sears, Roebuck and Co.45.20 11/16/2004 3/24/2005 19,184.5 16,312.5 50.34 44.7% 55.3% 12,074.5 2.2x 4.4x 16,312.5 12.3x 7.2x 0.4x
Dollar General CorporationFamily Dollar Stores Inc.76.06 8/18/2014 NA 9,892.4 9,710.6 80.00 100.0% 0.0% 9,116.0 5.5x 25.9x 9,710.6 17.5x 11.9x 0.9x
High 12,074.5 9.1x 49.9x 16,647.6 17.8x 11.9x 1.3x
Median 7,997.3 3.1x 22.8x 8,357.7 13.2x 9.2x 0.9x
Low 1,550.1 2.2x 4.4x 1,366.1 11.3x 7.2x 0.4x
Average 6,917.4 4.2x 24.3x 8,755.2 14.2x 9.3x 0.9x

28. 2812/10/2014
Exhibit
Exhibit 3(c) : Valuation for Target Corp. * Source CapitalIQ
COMPARABLE COMPANY ANALYSIS
(In USD millions, except per share data)
Stock Price Current as %of 52-Week (%) Shares Market Enterprise Revenue EBITDA EPS
Ticker Trading Data and Size 12/7/14 High Low Out. Cap Value LTM CY+1 LTM CY+1 LTM CY+1
NasdaqGS:COSTCostco Wholesale Corporation 143.25 99.8 130.8 437.8 62,709.4 60,892.4 112,640.0 114,560.8 4,249.0 4,421.6 4.65 4.80
NYSE:WMT Wal-Mart Stores Inc. 84.12 95.5 116.4 3,223.2 271,134.7 325,190.7 483,792.0 484,091.3 35,696.0 36,505.1 4.75 4.99
NYSE:DG Dollar General Corporation 68.21 99.0 128.7 303.4 20,696.7 23,249.8 18,464.5 18,930.3 2,081.9 2,138.1 3.34 3.50
NYSE:FDO Family Dollar Stores Inc. 79.78 98.5 143.4 114.4 9,122.9 9,474.7 10,489.3 10,560.0 786.5 781.5 2.49 3.00
NasdaqGS:DLTRDollar Tree, Inc. 68.41 98.2 137.9 205.7 14,068.8 14,418.2 8,361.5 8,590.5 1,228.8 1,268.3 2.91 3.11
NYSE:KSS Kohl's Corp. 57.06 89.8 117.2 202.0 11,526.6 15,683.6 18,785.0 18,897.1 2,533.0 2,524.5 4.01 4.03
NasdaqGS:BBBYBed Bath & Beyond Inc. 72.31 89.5 131.6 185.2 13,393.7 13,607.1 11,669.8 11,773.9 1,802.6 1,792.0 4.82 4.89
0 0 0.00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.00 0.00
Max 143.25 99.8 143.4 3,223.2 271,134.7 325,190.7 483,792.0 484,091.3 35,696.0 36,505.1 4.82 4.99
Median 70.36 96.9 129.8 203.8 13,731.2 15,050.9 15,067.1 15,335.5 1,942.3 1,965.0 3.68 3.77
Min 0.00 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.00 0.00
Mean 71.64 83.8 113.3 584.0 50,331.6 57,814.6 83,025.3 83,425.5 6,047.2 6,178.9 3.37 3.54
NYSE:TGT Target Corp. 73.66 98.5 134.8 637.0 46,918.8 60,470.8 73,703.0 74,480.0 5,720.0 6,224.3 2.38 3.24

29. 2912/10/2014
Exhibit
Exhibit 3(d) : Valuation for Target Corp. * Source CapitalIQ
Total Debt/ Net Debt/ EBITDA/ (EBITDA-Capex) Total Debt/ Total Debt/ TEV/Revenue TEV/EBITDA P/E
Ticker Leverage and Trading MultiplesLTM EBITDA LTM EBITDA Interest /Interest Tot. Equity (%) Total Cap (%) LTM CY+1 LTM CY+1 LTM CY+1
NasdaqGS:COSTCostco Wholesale Corporation 1.2x NM 37.6x 20.0x 42.2 29.7 0.5x 0.5x 14.3x 13.8x 30.8x 29.9x
NYSE:WMT Wal-Mart Stores Inc. 1.6 1.4 14.8 9.9 66.4 39.9 0.7 0.7 9.1 8.9 17.7 16.9
NYSE:DG Dollar General Corporation 1.3 1.2 23.4 19.1 51.8 34.1 1.3 1.2 11.2 10.9 20.4 19.5
NYSE:FDO Family Dollar Stores Inc. 0.6 0.4 26.2 11.7 30.0 23.1 0.9 0.9 12.0 12.1 32.0 26.6
NasdaqGS:DLTRDollar Tree, Inc. 0.6 0.3 35.3 26.7 47.8 32.3 1.7 1.7 11.7 11.4 23.5 22.0
NYSE:KSS Kohl's Corp. 1.9 1.6 7.4 5.2 82.5 45.2 0.8 0.8 6.2 6.2 14.2 14.1
NasdaqGS:BBBYBed Bath & Beyond Inc. 0.8 0.1 166.0 134.4 51.0 33.8 1.2 1.2 7.5 7.6 15.0 14.8
0 0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Max 1.9x 1.6x 166.0x 134.4x 82.5 45.2 1.7x 1.7x 14.3x 13.8x 32.0x 29.9x
Median 1.0 0.4 24.8 15.4 49.4 33.1 0.9 0.9 10.1 9.9 19.1 18.2
Min 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Mean 1.0 0.7 38.8 28.4 46.5 29.8 0.9 0.9 9.0 8.9 19.2 18.0
NYSE:TGT Target Corp. 2.5x 2.4x 8.6x 5.3x 87.5 46.7 0.8x 0.8x 10.6x 9.7x 30.9x 22.7x

30. 3012/10/2014
Exhibit
Exhibit 3(e) : Valuation for Target Corp. * Source CapitalIQ
Total Debt/ Net Debt/ EBITDA/ (EBITDA-Capex) Total Debt/ Total Debt/ TEV/Revenue TEV/EBITDA P/E
Ticker Leverage and Trading MultiplesLTM EBITDA LTM EBITDA Interest /Interest Tot. Equity (%) Total Cap (%) LTM CY+1 LTM CY+1 LTM CY+1
NasdaqGS:COSTCostco Wholesale Corporation 1.2x NM 37.6x 20.0x 42.2 29.7 0.5x 0.5x 14.3x 13.8x 30.8x 29.9x
NYSE:WMT Wal-Mart Stores Inc. 1.6 1.4 14.8 9.9 66.4 39.9 0.7 0.7 9.1 8.9 17.7 16.9
NYSE:DG Dollar General Corporation 1.3 1.2 23.4 19.1 51.8 34.1 1.3 1.2 11.2 10.9 20.4 19.5
NYSE:FDO Family Dollar Stores Inc. 0.6 0.4 26.2 11.7 30.0 23.1 0.9 0.9 12.0 12.1 32.0 26.6
NasdaqGS:DLTRDollar Tree, Inc. 0.6 0.3 35.3 26.7 47.8 32.3 1.7 1.7 11.7 11.4 23.5 22.0
NYSE:KSS Kohl's Corp. 1.9 1.6 7.4 5.2 82.5 45.2 0.8 0.8 6.2 6.2 14.2 14.1
NasdaqGS:BBBYBed Bath & Beyond Inc. 0.8 0.1 166.0 134.4 51.0 33.8 1.2 1.2 7.5 7.6 15.0 14.8
0 0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Max 1.9x 1.6x 166.0x 134.4x 82.5 45.2 1.7x 1.7x 14.3x 13.8x 32.0x 29.9x
Median 1.0 0.4 24.8 15.4 49.4 33.1 0.9 0.9 10.1 9.9 19.1 18.2
Min 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Mean 1.0 0.7 38.8 28.4 46.5 29.8 0.9 0.9 9.0 8.9 19.2 18.0
NYSE:TGT Target Corp. 2.5x 2.4x 8.6x 5.3x 87.5 46.7 0.8x 0.8x 10.6x 9.7x 30.9x 22.7x

31. 31Washington University Olin Business School - PMBA34 12/10/2014
Exhibit
Exhibit 3(f) : Valuation for Target Corp. * Source CapitalIQ
3-Year Historical CAGR (%) LTM Margins (%) Liquidity Ratios LTM Activity LTM Profitability (%)
Operating Statistics Revenue EBITDA EPS EBITDA Net Income Quick Current DSO DPO DIO ROE ROIC
Costco Wholesale Corporation 8.2 8.9 12.1 3.8 1.8 0.6x 1.2x 0.0 30.1 30.2 17.7 11.9
Wal-Mart Stores Inc. 3.2 1.4 2.3 7.4 3.3 0.2 0.9 4.6 39.4 50.7 19.7 11.8
Dollar General Corporation 9.4 7.5 18.5 11.3 5.6 0.1 1.6 0.0 37.1 76.5 19.4 13.3
Family Dollar Stores Inc. 7.1 (0.8) (7.2) 7.5 2.7 0.2 1.9 0.0 38.4 80.6 17.4 15.2
Dollar Tree, Inc. 9.3 9.8 15.7 14.7 7.2 0.5 2.1 0.0 35.5 85.4 47.6 29.7
Kohl's Corp. (0.1) (5.3) (1.9) 13.5 4.4 0.2 1.7 0.0 70.8 151.5 14.2 9.6
Bed Bath & Beyond Inc. 8.6 3.9 11.1 15.4 8.4 0.6 2.2 0.0 57.5 137.4 28.2 23.2
0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Max 9.4 9.8 18.5 15.4 8.4 0.6x 2.2x 4.6 70.8 151.5 47.6 29.7
Median 7.6 2.6 6.7 9.4 3.9 0.2 1.6 0.0 37.7 78.6 18.6 12.6
Min (0.1) (5.3) (7.2) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Mean 5.7 3.2 6.3 9.2 4.2 0.3 1.4 0.6 38.6 76.5 20.5 14.3
Target Corp. 2.1 (8.7) (17.9) 7.8 2.1 0.1x 1.0x 0.0 61.7 74.3 9.4 6.8

32. 3212/10/2014
Exhibit
Exhibit 4(a) : DCF Valuation for Target Corp. * Source CapitalIQ
Discounted Cash Flow Analysis for Target Corp.
USD in
millions
Historical year ending February 1, Projected year ending February 1,
2012 2013 2014 2015 2016 2017 2018 2019
Sales 69865.00 73301.00 72596.00 74032.05 75685.63 77569.49 79698.41 82089.37
Cost of goods sold 48306.00 50874.00 50769.00 51773.28 52929.69 54247.14 55735.97 57408.05
Gross Profit 21559.00 22427.00 21827.00 22258.77 22755.94 23322.35 23962.44 24681.31
SG&A 14063.00 14877.00 15300.00 15602.65 15951.16 16348.19 16796.87 17300.78
EBITDA 7496.00 7550.00 6527.00 6656.11 6804.78 6974.16 7165.57 7380.53
EBITDA Margin 0.11 0.10 0.09 0.09 0.09 0.09 0.09 0.09
Less: Depreciation (2107.00) (2120.00) (2198.00) (2191.86) (2553.56) (2937.64) (3347.59) (3787.22)
Less: Amortization (24.00) (22.00) (25.00) (23.50) (23.50) (23.50) (23.50) (23.50)
EBIT 5365.00 5408.00 4304.00 4440.75 4227.72 4013.02 3794.48 3569.81
Less: Taxes @ 38.0% (2038.70) (2055.04) (1635.52) (1687.49) (1606.54) (1524.95) (1441.90) (1356.53)
Tax-effected EBIT 3326.30 3352.96 2668.48 2753.27 2621.19 2488.07 2352.58 2213.28
Plus: Depreciation and amortization 2142.00 2223.00 2215.36 2577.06 2961.14 3371.09 3810.72
Less: Capital expenditures (3277.00) (3453.00) (3415.49) (3491.78) (3578.69) (3676.91) (3787.22)
Less: Additions to intangibles 0.00 0.00 0.00 0.00 0.00 0.00 0.00
(Increase)/decrease in working capital 567.00 5306.00 14.62 16.83 19.18 21.67 24.34
Unlevered Free Cash Flow 2784.96 6744.48 1567.75 1723.30 1889.70 2068.42 2261.12

33. 3312/10/2014
Exhibit
Exhibit 4(b) : DCF Valuation for Target Corp. Scenarios * Source CapitalIQ
Stock Price Sensitivity Analysis for Target Corp.
Share price in USD
Perpetuity Growth Method
WACC step
Weighted average cost of capital 0.0025
35.41571384 0.075 0.0775 0.08 0.0825 0.085 0.0875 0.09 Growth rate step
0.01 28.99538994 27.06622918 25.27548174 23.60882181 22.05383379 20.59970421 19.23697134 0.0025
0.0125 30.62703303 28.56303737 26.65255029 24.87911722 23.22855328 21.68856502 20.24844532
0.015 32.39464637 30.17959022 28.1355472 26.24350859 24.48718131 22.85251968 21.3273509
Terminal 0.0175 34.31596523 31.93085581 29.73718386 27.71285314 25.83904104 24.09961396 22.48066376
growth 0.02 36.41194943 33.83440536 31.47229024 29.29974526 27.29488998 25.4390856 23.71635611
rate 0.0225 38.70755118 35.91100487 33.35827544 31.01887839 28.86720683 26.88159351 25.04358122
0.025 41.2327131 38.18537576 35.41571384 32.88750135 30.57055009 28.43950206 26.47290058
0.0275 44.02368154 40.68718374 37.66909875 34.92599913 32.42201016 30.12723632 28.01656549
0.03 47.12475759 43.45233993 40.14782215 37.15863955 34.44178477 31.96173008 29.68886914
0.0325 50.59066611 46.5247357 42.8874638 39.61454402 36.65391887 33.962996 31.50659049
0.035 54.4898132 49.95858979 45.93151008 42.32896474 39.08726639 36.15485868 33.48955924
0.0375 58.90884656 53.82167564 49.33367946 45.34498777 41.77675574 38.56590762 35.66138216
EBITDA Multiple Method
Weighted average cost of capital
73.662969 0.075 0.0775 0.08 0.0825 0.085 0.0875 0.09 Exit multiple
9.5 66.98614099 66.10299065 65.23204961 64.37312139 63.52601315 62.69053553 61.86650268 0.25
9.75 68.99881574 68.0924246 67.19856405 66.31703246 65.4476319 64.59016803 63.7444501
10 71.01149048 70.08185854 69.1650785 68.26094353 67.36925064 66.48980053 65.62239752
Terminal 10.25 73.02416523 72.07129249 71.13159294 70.20485461 69.29086939 68.38943302 67.50034494
multiple 10.5 75.03683997 74.06072643 73.09810739 72.14876568 71.21248814 70.28906552 69.37829236
10.75 77.04951472 76.05016038 75.06462183 74.09267675 73.13410689 72.18869801 71.25623978
11 79.06218946 78.03959433 77.03113628 76.03658782 75.05572564 74.08833051 73.13418721
11.25 81.07486421 80.02902827 78.99765072 77.98049889 76.97734439 75.98796301 75.01213463
11.5 83.08753895 82.01846222 80.96416517 79.92440996 78.89896314 77.8875955 76.89008205
This model is provided "as is". Training The Street, Inc., S&P Capital IQ, Inc. and their affiliates have no liability arising out of the use of this model.

34. 34Washington University Olin Business School 12/10/2014
Exhibit
Exhibit 5 : COMPARABLE COMPANY ANALYSIS
* Source Capital IQ
COMPARABLE COMPANY ANALYSIS
LTM Profitability (%) Asset Turnover
Ticker Name ROE ROA ROIC Total Assets Fixed Assets A/R Inventory
NasdaqGS:COSTCostco Wholesale 17.7 6.4 11.9 3.6x 7.8x 0.0x 12.0x
NYSE:WMT Wal-Mart Stores Inc. 19.7 7.9 11.8 2.3x 4.1x 78.7x 7.2x
NYSE:DG Dollar General 19.4 10.1 13.3 1.7x 8.4x 0.0x 4.8x
NYSE:FDO Family Dollar Stores Inc. 17.4 8.6 15.2 2.8x 6.1x 0.0x 4.5x
NasdaqGS:DLTRDollar Tree, Inc. 47.6 20.5 29.7 2.7x 7.3x 0.0x 4.3x
NYSE:KSS Kohl's Corp. 14.2 6.8 9.6 1.2x 2.1x 0.0x 2.4x
NasdaqGS:BBBYBed Bath & Beyond Inc. 28.2 14.7 23.2 1.7x 7.6x 0.0x 2.6x
47.6 20.5 29.7 3.6x 8.4x 78.7x 12.0x
19.4 8.6 13.3 2.3 7.3 0.0 4.5
14.2 6.4 9.6 1.2 2.1 0.0 2.4
23.5 10.7 16.4 2.3 6.2 11.2 5.4
Target Company
NYSE:TGT Target Corp. 9.4 4.5 6.8 1.6 2.4 0.0x 4.9x
Source: S&P Capital IQ
This model is provided "as is". S&P Capital IQ, Inc. and its affiliates have no liability arising out of your use of this model.

35. 35Washington University Olin Business School 12/10/2014
Exhibit
Exhibit 6a : Accretion/Dilution ANALYSIS
* Source Capital IQ
Costco Wholesale Corporation (COST) Acquisition of Target Corp. (TGT)
Estimated earnings impact of 95.68 per share offer (100.0% Stock, 0.0% Cash)
(USD in millions)
Income Statement Adjustments FY 2015 FY 2016 FY 2017
Pre-tax Adjustments
Less: Additional interest expense @ 5.0% 0.0 0.0 0.0
+ / ( - ): Synergies 700.0 700.0 700.0
+ / ( - ): Depreciation from write-up (448.2) (448.2) (448.2)
+ / ( - ): Amortization from write-up (358.6) (358.6) (358.6)
( - ): Foregone interest income @ 1.0% (2.4) (2.4) (2.4)
+ / ( - ): Other adjustments 0.0 0.0 0.0
Total pre-tax adjustments (109.3) (109.3) (109.3)
Less: taxes @ 38.0% 41.5 41.5 41.5
Total After-tax Adjustments (67.8) (67.8) (67.8)
Acquirer net income (COST) 2,288.4 2,531.2 2,854.6
Target net income (TGT)** 2,310.9 2,660.1 3,107.8
Pro Forma Combined Net Income 4,531.5 5,123.6 5,894.7
Acquirer shares (COST) 441.887 441.887 441.887
New shares issued 427.831 427.831 427.831
Pro Forma Shares 869.718 869.718 869.718
Pro Forma EPS 5.21 5.89 6.78
Acquirer Stand-Alone EPS 5.18 5.73 6.46
Accretion / (Dilution)
EPS Accretion / (Dilution) - USD 0.03 0.16 0.32
EPS Accretion / (Dilution) - % 0.6% 2.8% 4.9%
Additional pre-tax (cushion) / synergies to breakeven (44.5) (228.5) (445.6)
**Target financials calendarized to Acquirer's fiscal year end Aug-31.

36. 36Washington University Olin Business School 12/10/2014
Exhibit
Exhibit 6b : Accretion/Dilution ANALYSIS
* Source Capital IQ
FY 2015 EPS Accretion / (Dilution) - %
Offer Price
88.18 90.68 93.18 95.68 98.18 100.68 103.18
0.0% 24.0% 21.0% 18.1% 15.1% 12.2% 9.2% 6.3%
10.0% 20.8% 18.0% 15.3% 12.5% 9.8% 7.0% 4.3%
20.0% 18.2% 15.5% 12.9% 10.3% 7.8% 5.2% 2.7%
30.0% 15.9% 13.4% 10.9% 8.5% 6.1% 3.7% 1.4%
40.0% 13.9% 11.5% 9.2% 6.9% 4.6% 2.4% 0.2%
% Stock 50.0% 12.1% 9.9% 7.7% 5.5% 3.4% 1.3% (0.8%)
60.0% 10.6% 8.5% 6.3% 4.3% 2.3% 0.3% (1.7%)
70.0% 9.2% 7.2% 5.2% 3.2% 1.3% (0.6%) (2.4%)
80.0% 8.0% 6.0% 4.1% 2.2% 0.4% (1.4%) (3.1%)
90.0% 6.9% 5.0% 3.2% 1.4% (0.4%) (2.1%) (3.7%)
100.0% 5.9% 4.1% 2.3% 0.6% (1.1%) (2.7%) (4.3%)
FY 2016 EPS Accretion / (Dilution) - %
Offer Price
88.18 90.68 93.18 95.68 98.18 100.68 103.18
0.0% 35.5% 32.8% 30.1% 27.5% 24.8% 22.1% 19.5%
10.0% 30.7% 28.1% 25.6% 23.0% 20.5% 18.0% 15.5%
20.0% 26.7% 24.2% 21.8% 19.3% 16.9% 14.6% 12.2%
30.0% 23.2% 20.8% 18.5% 16.2% 13.9% 11.7% 9.4%
40.0% 20.2% 17.9% 15.7% 13.5% 11.3% 9.2% 7.1%
% Stock 50.0% 17.6% 15.4% 13.2% 11.1% 9.1% 7.0% 5.0%
60.0% 15.2% 13.1% 11.1% 9.1% 7.1% 5.2% 3.3%
70.0% 13.1% 11.1% 9.2% 7.2% 5.4% 3.5% 1.7%
80.0% 11.3% 9.4% 7.5% 5.6% 3.8% 2.1% 0.3%
90.0% 9.6% 7.7% 5.9% 4.2% 2.4% 0.7% (0.9%)
100.0% 8.1% 6.3% 4.5% 2.8% 1.2% (0.4%) (2.0%)
FY 2017 EPS Accretion / (Dilution) - %
Offer Price
88.18 90.68 93.18 95.68 98.18 100.68 103.18
0.0% 47.1% 44.8% 42.4% 40.0% 37.7% 35.3% 33.0%
10.0% 40.7% 38.4% 36.0% 33.7% 31.4% 29.1% 26.9%
20.0% 35.2% 33.0% 30.7% 28.5% 26.2% 24.0% 21.8%
30.0% 30.6% 28.3% 26.1% 24.0% 21.8% 19.7% 17.6%
40.0% 26.5% 24.3% 22.2% 20.1% 18.0% 16.0% 14.0%
% Stock 50.0% 22.9% 20.8% 18.8% 16.8% 14.8% 12.8% 10.9%
60.0% 19.8% 17.7% 15.8% 13.8% 11.9% 10.0% 8.2%
70.0% 17.0% 15.0% 13.1% 11.2% 9.4% 7.6% 5.8%
80.0% 14.4% 12.5% 10.7% 8.9% 7.1% 5.4% 3.7%
90.0% 12.2% 10.3% 8.5% 6.8% 5.1% 3.4% 1.8%
100.0% 10.1% 8.3% 6.6% 4.9% 3.3% 1.7% 0.1%