Oct 23 Target Corp agreed to sell its
credit card portfolio to Toronto-Dominion Bank ,
nearly two years after the U.S. discount retailer said it wanted
to unload the business.
TD will pay an amount equal to the gross value of the
outstanding receivables - most recently valued at $5.9 billion -
when the deal closes, and signed a 7-year agreement to be the
exclusive issuer of Target-branded Visa and private-label cards
in the United States.
The deal gives Toronto-based TD, the sixth-largest bank in
North America, a way to expand its credit card portfolio and
allows Target to cut debt as it expands retail operations,
including its first foray into Canada, planned for early next
Target's credit card business has been growing as the chain
offers 5 percent discounts for users of the so-called REDcard
and free shipping for online orders.
In the second quarter, the percentage of sales in Target
stores paid with Target's REDcard credit and debit cards rose to
12.8 percent from 8.7 percent a year earlier.
"This is a pretty high-quality portfolio," said Tom
Lewandowski, a St. Louis-based banking analyst at Edward Jones.
Canada's banks escaped the 2008 financial crisis in
relatively strong shape and have been seeking foreign-owned
assets to offset meager growth prospects in their home market.
Separately, TD's larger rival Royal Bank of Canada
said on Tuesday it agreed to buy the Canadian auto finance and
deposit arm of Ally Financial. TD was also
involved in the bidding for Ally, a source told Reuters.
Under terms of the deal, Target, the No. 2 U.S. discounter
after Wal-Mart Stores Inc, will keep earning a
substantial portion of profits generated by its credit card and
Minneapolis-based Target said third-quarter earnings will
reflect a pretax gain of about $150 million as it changes the
accounting treatment of its receivables from "held for
investment" to "held for sale."
It expects to recognize an additional pretax gain of $350
million to $450 million when the deal closes.
The deal, subject to regulatory approval, is expected to be
completed during the first half of 2013.
TD shares dropped 1.3 percent at C$81.86, in line with other
Toronto-listed financials, while Target added 0.7 percent to
$62.66 in New York trading.
ANALYSTS: DEAL FITS TD STRATEGY
TD said in a statement the deal would help achieve an
adjusted earnings target of $1.6 billion from its U.S. retail
segment in 2013. The unit earned $355 million in the fiscal
Analysts said the deal fits the bank's strategy of making
small acquisitions to bulk up its 1,300-branch U.S. retail bank
and provide an outlet for deposits it has accumulated since
entering the U.S. market eight years ago.
"There's not a ton of things to do with those deposits, and
so this is very much in keeping with that kind of a strategy,"
said CIBC World Markets analyst Robert Sedran.
Last year, TD acquired the credit card portfolio of MBNA
Canada - one of the largest MasterCard issuers in Canada - from
Bank of America Corp.
PROCEEDS TO PAY DOWN DEBT
Target Chief Executive Gregg Steinhafel said last week the
company expected to find the right buyer for the credit card
business by the end of the year.
The company first said it wanted to sell its receivables
portfolio in January 2011, then put the plans on hold in January
2012, saying it would restart talks after paying off financing
it had with JP Morgan Chase & Co.
Target plans to use about 90 percent of the proceeds from
the deal to reduce its net debt position, and the rest to
repurchase its shares over time.
Target said adjusted earnings per share will be about 10
cents lower in the first year after the deal closes than they
would have been if Target kept funding the portfolio - due to
the combination of the profit-sharing arrangement, debt
reduction and share repurchases.
Over time, Target expects that the deal will be neutral to
adjusted earnings per share.