After rounds of layoffs and cost-cutting, Borders Group (NYSE: BGP) is struggling for survival against a large debt load and declining fundamentals.

But the company got a stay of execution yesterday when it announced that its $42.5 million loan agreement with William Ackman's Pershing Square Capital Management had been extended for another year. One explanation for Ackman's lenience is his status as the company's largest shareholder in addition to being a major creditor.

William Ackman has gained a tremendous amount of publicity for his prescient calls on the subprime bubble, but his biggest long position has not panned out.

In 2007, Ackman raised $2 billion for Pershing Square IV, a hedge fund dedicated exclusively to shares of Target Corp. (NYSE: TGT). Because of a high-risk options strategy that made the fund far more volatile than the shares of the underlying stock, the fund is down 89.5% since inception, including a 40.1% drop in January alone.

With big bets on the collapses of companies like Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) and MBIA, Inc. (NYSE: MBI) and Ambac (NYSE: ABK), William Ackman profited handsomely with his bets on the decline of the housing market under the weight of too much risky debt.

Now he's taking the other side of that idea. In an amended 13-D filed with the SEC on Monday, Ackman's Pershing Square Capital Management disclosed that swap contracts with several institutions have raised its stake in General Growth Properties (NYSE: GGP) by an additional 18.1%, on top of the 7.5% stake he reported last month.

General Growth Properties owns and/or operates 200 regional shopping malls in 44 states, and had been one of the most highly-valued REITs in the market. But a heavy debt load and economic woes sent the companies stock price from more than $49 toward the end of last year to a low of 24 cents last month.

The company has major issues with its creditors and has attracted the scorn of credit rating agencies.

Given Ackman's record on real estate and debt predictions of late, it's hard to make the case for betting against him when he finally expresses some bullishness on a distressed company.

Activist investor William Ackman wants Target Corp. (NYSE: TGT) to have an IPO to raise roughly $5.1 billion to assist the retailer as it works to pay down debt and obtain cash for new store openings. This proposed IPO would be for Target's real estate holdings, which would be spun off into a separate entity. It would then lease the land back to the retailer for up to 75 years.

When Ackman originally suggested the REIT spinoff a month ago, Target indicated it had serious concerns about his plan and how it would create any value for shareholders. I'm not sure what Ackman is thinking, but there is one truism here: we can't create more land for anything. There is a finite supply of it. Spinning off Target's vast holdings into an inflation-protected trust that would lease land back, would create, well, something. Let's call it value.

As Target pledged to reduce capital spending by $1 billion in 2009 to help it cope with the economic nightmare that's underway, this spinoff would definitely be in the interest of shareholders. It's hard to think how this would not benefit them. Some folks think diverting attention away from recruiting every last shopper into Target stores to spend money would be foolish. At least Target execs are listening, though.

Short selling sounds un-American -- hey, it's about making money when securities fall. Yet, it has been a part of markets for centuries.

But when markets undergo periods of extreme stress, then people look for villains. Of course, short selling is an easy target.

It should not be surprising then that the Securities and Exchange Commission recently banned short selling for hundreds of financial stocks. Somehow, the hope was that it would stem the market slide.

Well, the markets have continued to crash.

Interestingly enough, one of the top investors in the world -- Pershing Square's William Ackman, speaking at Value Investing Congress in New York – thinks that the ban was one of the main factors for the loss of investor confidence.

Keep in mind that hedge funds have become a dominant player in the financial markets. They have come to rely on short selling and without the ability to make such trades, hedge funds got squeezed. As a result, there was a massive unwinding of positions.

Although, there is a silver lining. The plunge has resulted in a disconnection between fundamentals and pricing. In other words, there appear to be some compelling opportunities in the markets.

In fact, it looks like Ackman is already capitalizing on his savvy purchase of 180 million shares of Wachovia (NYSE: WB) when it got an offer from Citigroup (NYSE: C) last week. It was one of his first longs on financials in the past five years.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He is also the founder of BizEquity, a valuation website

Bloomberg News reports that Moody's (NYSE: MCO) may downgrade municipal bond insurer MBIA (NYSE: MBI) after it reported deepening losses from the mortgage-market slump. MBIA's insurance financial strength rating may fall to the Aa range, although a drop to the A category is possible. MBIA's stock is down 91% since the end of May 2007.

That's when I first suggested that investors consider selling MBIA shares short. William Ackman had already shorted MBIA because he thought it lacked the capital needed to support its obligations. Back then, MBIA traded at $66.59 a share -- today it's down to $5.88. His bet proved prescient.

Meanwhile, investors are wagering that MBIA won't make it. Credit-default swaps tied to MBIA's insurance unit rose to a record as investors hedged against the risk the company's guarantees will sour. Sellers of five-year contracts demanded 23% upfront and 5% a year. That's up from 18.5% initially and 5% a year yesterday.

Only $5.88 more to go.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in MBIA securities.

A recent panel at Tulane's Corporate Law Institute discussed the rise of activist investors, with participants including a corporate public relations man, representatives from proxy solicitation firms, a representative of a firm that helps companies fight activists, and a lawyer who has represented William Ackman, one of the most prominent activist investors going.

The New York Times' DealBook reports that "Dan Burch of the proxy solicitor firm Mackenzie Partners lamented how some defenses aimed at thwarting activist proxy fights, like staggered boards that only put a small number of directors up for election in a given year, are failing. Many activists are now nominating full slates of director candidates, and companies are giving in by ceding some seats in any election."

What exactly is wrong with that? To be sure, there are cases where activist investors are wrong and the goals that they achieve do not maximize shareholder value. But I would posit that this is the exception, not the rule.

Activist investors -- who profit only from a rise in the company's share price -- are the only people who truly have their interests aligned with shareholders. Executives and directors may be motivated by salaries, perks, ego, etc.

In addition, activists generally move in on companies where the current management team's strategy has failed to generate value. Most companies that are targets of activist hedge funds have long track records of destroying shareholder value. A company that's been creating value at a good clip for shareholders has a compelling response to activists: "Our strategy has worked and we think it will continue to work. Leave us alone!"

Activist investors aren't a problem. They are the solution to the problem of a lack of accountability at the highest levels of public companies.

Back in November, I wondered whether hedge fund genius William Ackman was barking up the wrong tree with his 17% stake in Borders (NYSE: BGP). Since then, the stock has declined from over $10 a share to less than $5. Ackman has shown tremendous commitment to his stake in the company, but I'm still skeptical. The stock is down 34%, in spite of the company's announcement that it is exploring strategic alternatives. The problem is that, in addition to that rosy decision, the company reported pretty ugly fourth quarter and year-end results. Oh, and the company also suspended its dividend to conserve cash.

But Ackman's Pershing Square Capital is staying strong. In light of the company's tight cash position, the fund lent $42.5 million at a 12.5% interest rate, and also agreed to purchase the company's Paperchase, Australia, New Zealand and Singapore subsidiaries for $125 million if Borders decides it wants them to. Ackman's fund also receives 14.7 million warrants to purchase Borders stock at $7 per share -- warrants which are badly out of the money.

But back to the strategic alternatives thing: the company hired JPMorgan and Merrill Lynch to help conduct a "review process will include the investigation of a wide range of alternatives including the sale of the company and/or certain divisions for the purpose of maximizing shareholder value."

The plummeting share price is indicative of the street's skepticism that anything will get done, and I understand why. Given Borders' lack of profitability and a business model that is becoming obsolete, I don't understand why anyone would want to buy Borders.

But this is a contrarian play, and today's plunge has sent Borders' stock into a position where it's trading at a large discount to its book value. But the declining fundamentals could scare off many suitors. I'll be watching this one from the sidelines.

Warren Buffett said on CNBC this morning that his company, Berkshire Hathaway (NYSE: BRK.A) has offered to help bond insurers on the brink by offering a second level of insurance -- up to $800 billion -- on municipal bonds.

Buffett said he he made the offer to Ambac (NYSE: ABK), MBIA (NYSE: MBI) and FGIC.

The move will certainly put some wind in the sails of bulls who have taken a beat on Ambac and MBIA, but before you get too excited, consider that the Associated Press is reporting that the offer would only back municipal bonds and not other risky and complicated financial instruments.

Municipal bonds make up about two-thirds of the insurance industry's portfolio, with asset-backed securities making up the other third. But the asset-backed securities are probably the bigger concern.

It will be interesting to see if William Ackman, who has been vocally bearish on the industry for a long time, will have any comments on Buffett's offer.

The New York Times fingers hedge fund manager William Ackman for yesterday's down market. That's because Ackman has been a vocal pioneer of the idea that bond insurers lack the capital to back their bets on the solvency of the bonds they insure and they might lose $24 billion as a result. And the holders of those bonds are banks and insurance companies which will be forced to write-down the value of those bonds -- to the tune of $70 billion more -- if the bond insurers lose their AAA ratings.

I wrote about Ackman's bet against bond insurance last May. If you had followed my suggestion to follow Ackman's short sales of MBIA (NYSE: MBI) and Ambac Financial Group (NYSE: ABK) you would have profited from the respective 81% and 89% declines in these stocks since then. And as a protege of Harvard Business School Professor Michael E. Porter -- with whom I worked -- I admire Ackman's analytical skills and his willingness to put money into his bets. Moreover, Ackman pledged to give the profits from his bond insurance short sales to charity.

But Ackman's estimate of the losses from downgraded bond insurers is big and scary. His report yesterday predicted that MBIA and Ambac might lose $24 billion on the CDOs they guaranteed. That $24 billion is a significant percentage of the $1 trillion in municipal, corporate and mortgage debt that they insure with their AAA ratings. Unfortunately, ratings agencies like S.& P. and Moody's Investors Service may downgrade them due to a lack of capital relative to their potential losses.

With shares of leading book retailers Borders (NYSE: BGP) and Barnes & Noble (NYSE: BKS) having tanked in recent months, some prominent investors are starting to wonder if there's value to be unlocked.

Pershing Square Capital Management, a very good activist hedge fund run by William Ackman, secured a spot on the Borders board of directors last week, and may seek to make changes.

But with sites like Amazon.com (NASDAQ: AMZN) and discounters like Wal-Mart (NYSE: WMT) offering books at a much better value than Borders can, the activists' traditional bag of tricks -- cost-cutting, buybacks, dividends, putting the company up for sale, etc -- may not be enough. For Borders, cost-cutting is the opposite of the solution. In order to remain relevant, the brick and mortar stores will have to provide a value-added experience to the consumer, and make it worth paying 30% more than you would on Amazon. Creating an environment like that costs money.

Running a small independent bookstore is a labor of love characterized by poor margins and cutthroat competition. The Wall Street Journal recently looked at one of the ways struggling retailers are looking to stay open (subscription required) -- essentially getting book-lovers to "invest" in the stores to keep them open, with the understanding that the investment is risk and has very little upside. Now that my friends is angel investing.

In the end, I think Ackman may be barking up the wrong tree. As Oren Teicher, the chief operating officer of the American Booksellers Association, told the Journal, "The margins are small, the competition is fierce, and you're selling a product that is the same no matter where you buy it."

Borders is already bleeding red ink and won't be able to differentiate itself without spending tons of money, probably exacerbating the problem. But in its current form, the company just can't make any money.

When activist investor William Ackman comes to town and starts buying your shares, you can bet he'll be hounding the board for changes soon. That's the case with discount retailer Target Corp. (NYSE: TGT), as Ackman now owns just under 10% of the retailer's shares. What does he have in store? Quite a few changes that should boost the retailer's stock price in the next three years and give Ackman a handsome return on his investment.

First up was Ackman's suggestion that Target sell off its credit card operations -- something that management said would be considered. Just under three weeks ago, Target officials cited "market conditions" as the reason a decision to spin its credit card business had been delayed. In other words, Target probably had not found a buyer for the debt portfolio due to consumer credit having been tightened like a noose in the last calendar quarter of 2007.

What else did Ackman have in mind? He believes the company's shares could be worth $120 each within 36 months, based on an investor letter he wrote on December 27. On tap was Target's need to complete its $10 billion stock buyback and start ramping up cash flows based on all the real estate the company holds -- which Ackman pegs at $42 billion in worth. That's roughly Target's entire market capitalization, so the question becomes one of how Target is going to make money outside of selling diapers, pretzels and spring apparel. Expect those questions to be answered on Target's next quarterly results conference call on February 26.

When activist investor William Ackman comes to town and starts buying your shares, you can bet he'll be hounding the board for changes soon. That's the case with discount retailer Target Corp. (NYSE: TGT), as Ackman now owns right under 10% of the retailer's shares. What does he have in store? Quite a few changes that should boost the retailer's stock price in the next three years and give Ackman a handsome return on his investment.

First up was Ackman's suggestion that Target sell off its credit card operations -- something that management said would be considered. Just under three weeks ago, Target officials cited "market conditions" as the reason a decision to spin its credit card business had been delayed. In other words, Target probably had not found a buyer for the debt portfolio due to consumer credit having been tightened like a noose in the last calendar quarter of 2007.

What else did Ackman have in mind? He believes the company's shares could be worth $120 each within 36 months, based on an investor letter he wrote on December 27. On tap was Target's need to complete its $10 billion stock buyback and start ramping up cash flows based on all the real estate the company holds -- which Ackman pegs at $42 billion in worth. That's roughly Target's entire market capitalization, so the question becomes one of how Target is going to make money outside of selling diapers, pretzels and spring apparel. Expect those questions to be answered on Target's next quarterly results conference call on February 26.

When one of the most vocal activist investors in the world gives you three thumbs up, it's hard not to blush. That's probably what Target Corp. (NYSE: TGT) executives are feeling right now, as William Ackman acknowledged to Bloomberg News that Target is "probably the best retailer in the world.''

That's quite a dose of praise from Ackman, whose Pershing Square Capital Management investment company increased his stake in the nation's second-largest discount retailer back in the summer. Meanwhile, Target shares have fallen 15% since that time, but that isn't phasing Ackman at all.

Ackman, who has pressured the likes of McDonald's Corp. (NYSE: MCD) and is currently pressuring Sears Holdings (NYSE: SHLD) for share price gains, apparently likes Target very well. Pershing Square now holds 9.6% of Target through shares and options at this time, as as Ackman says, "We have enormous respect for management ... they are doing exactly the right things. Low income, upper income, millionaires, billionaires like shopping there. It's got a universal appeal. It's got incredibly high-quality products.''

That's quite an endorsement from an investor who squeezes hard when the going gets tough. Target's operational and sales environment must not be that tough at this time.

Sears Holdings Corp. (NASDAQ: SHLD) the hedge fund ... err, retail chain headed by hedge fund star Eddie Lampert, may see renewed pressure to sell off some it its valuable real estate soon. Notable activist investor William Ackman will see to it, as his fund, Pershing Square Capital Management, has acquired five million shares of the retailer. Mr. Ackman, who battled Lampert last year for control over Sears Canada, is set to have another celebrity deathmatch with him again soon, I'd suspect.

It's no surprise to anyone that Lampert's real mission with Sears Holdings is not the operational efficiency (or even profit) of the retail side of things; that's just a side mission probably talked about a few minutes at each board meeting. What Lampert did with Sears was to make it a holding company -- but the truth is, he owns so much of it that Ackman's potential advances may be akin to ascending a steep hill with slippery shoes on his feet. The New York Post even says that Ackman's buy-in was for "a long term investment" more than any moves to get Sears on the property-unloading trail.

Still, Ackman's purchase makes him the fourth-largest SHLD shareholder, and it's hard to imagine him wanting those shares for some kind of "long term investment" -- it just doesn't suit Ackman's profile at all. He's said before that the combined value of Sears' real estate is valued more than Lampert's $22 billion figure, and that difference provides a nice "cushion" should the retail end of things continue to falter. Sears' retail operations are going nowhere these days since there appears to be little direction to that end of the business. I submit that Ackman wants to break it all up and sell some real estate, Gekko-style. That, or he does not deserve the title 'activist investor.'