(Recasts with Scotiabank cards focus, analyst comment)
TORONTO May 8 Bank of Nova Scotia
is buying 20 percent of Canadian Tire Corp Ltd's
financial services business for C$500 million ($459
million) in a move to boost the bank's market share in credit
cards and get access to more customers.
The bank, Canada's No. 3 lender, will also supply up to
C$2.25 billion in credit card receivable financing to Canadian
Tire's unit, it said on Thursday.
Brian Porter, who took over as Scotiabank's chief executive
officer last year, said in April the bank would push for
"meaningful" growth in its credit card business over the next
"Canadian Tire is an iconic company with an incredibly
strong brand and great customer focus," he said in a statement,
adding that the deal would give the bank an opportunity to
increase its customer base.
As part of the arrangement, which is expected to close in
September, Canadian Tire has the option to sell up to another 29
percent of the business to Scotiabank within 10 years.
The retailer, which operates about 1,700 sporting goods and
hardware retail and gasoline outlets, said last year it was
looking for a partner for its credit card portfolio.
Canadian Tire's financial services division contributed
about 10 percent of Canadian Tire's first-quarter revenue and is
the eighth-largest credit card issuer in Canada, with 1.8
million active customer accounts and annual spending volume of
Scotiabank will fund the acquisition with cash.
The move comes amid a struggle for credit card market share
among Canada's banks as a slowing housing market has prompted
them to look for other avenues to drive lending growth.
Robert Sedran, an analyst at CIBC World Markets, said while
the transaction was financially immaterial for the bank, it was
"This is a noteworthy transaction that furthers this bank's
reach into the domestic financial services business and allows
it to deploy a little more capital in Canada and find another
way to attract customers to the bank," he said in a note.
Canadian Tire announced the agreement as it reported a 3.3
percent drop in first-quarter net profit attributable to
shareholders. It also said it will boost its dividend by 14
Shares of Canadian Tire were up 0.5 percent at C$108.44 on
the Toronto Stock Exchange, while Scotiabank was up 14 Canadian
cents at C$66.70.
($1 = 1.0903 Canadian dollars)
(Reporting by Cameron French in Toronto; Additional reporting
by Ashutosh Pandey and Shubhankar Chakravorty in Bangalore;
Editing by Don Sebastian and Jeffrey Benkoe)