UPDATE 2-Target to enter Canada with Zellers deal, own plans

Thu Jan 13, 2011 9:25am EST

* Target plans to open up to 150 stores in Canada

* Target to pay Zellers C$1.825 billion, take over leases

By John Tilak

TORONTO, Jan 13 (Reuters) - U.S. retailer Target Corp (TGT.N) on Thursday announced plans to enter the Canadian market, taking over leases for up to 220 Zellers stores owned by storied domestic retailer Hudson's Bay Co.

In its first foray outside its U.S. home market, Target said it would pay Zellers Inc C$1.825 billion ($1.84 billion) for the leases and would run the stores under the Zellers brand for "a period of time."

Target also said it was looking to sell its credit card receivables portfolio, which totaled $6.7 billion as of Oct. 30. First Annapolis is advising the company on the potential sale.

Minneapolis-based Target is the No. 2 discount chain in the United States, trailing industry leader Wal-Mart Stores Inc (WMT.N).

The company has more than 1,700 stores in 49 states and has been looking for areas to expand. Chief Executive Gregg Steinhafel told Reuters last May that Canada was a "natural" place for the retailer to expand and 60 percent of Canadians were familiar with the Target brand and its red-and-white bull's-eye logo.

Target said it expects to open up to 150 Target stores in Canada in 2013 and 2014 and expects financial returns on these stores to be in line with returns on new U.S. Target stores. It forecast a dilution in earnings ahead of the store openings, followed by accretion in the first year of operations.

Closely held Hudson's Bay, set up with fur trading operations across what is now much of Canada, is North America's oldest company. Zellers is its discount brand. (Additional reporting by Brad Dorfman; editing by Janet Guttsman) (john.tilak@thomsonreuters.com; +1 416 941 8067)