The Target Corporation said that it reached a deal to sell its credit card business to the TD Bank Group. It ended its two year search for a buyer. The company said that the sale price was equal to the gross value of its outstanding receivables at the time of closing. At present, Target’s portfolio has a gross value of around $5.9 billion.
The two companies entered into a seven year deal where TD bank will underwrite, finance, and own future Target credit card and Target Visa receivables in the United States. TD Bank will control risk-management policies and regulatory compliance while Target continues to perform account-servicing tasks.
TD Bank will make the decisions with regards to the approval of the applications and the interest rates to be charged to customers. On the other hand, Target will be the one to process the billing statements and customer service issues.
Target estimates its third quarter earnings per share to show a pretax increase of around $150 million, which is due to a change in the accounting treatment of its receivables from held for investment to held for sale. The company also expects to recognize another pretax gain of $350 million to $450 million on the sale of its portfolio.
The company plans to use 90 percent of the net proceeds from the sale to decrease its debt. The rest of the money will be for buying back stock over time. TD Bank said that the deal would expand its presence in North America and make it a key player in the credit card market.
