Target Suspends Efforts to Sell Credit Card Portfolio
Target Corporation is temporarily suspending its efforts to sell its credit card receivables portfolio-which manages the balances that credit card holders owe the company.
Target announced in January 2011 that it intended to sell the credit card receivables portfolio. But the Minneapolis-based retailer said Wednesday that based on discussions with potential partners, the company has determined that “it is not in its best interests to finalize a transaction at this time.”
Later this year, Target plans to re-engage in discussions with a limited number of potential partners, and the company believes that a transaction could occur in late 2012 or early 2013-about a year later than originally expected.
Although Wednesday's announcement was a departure from Target's previous plans, the company last year outlined difficulties in selling the portfolio. In a May filing with the U.S. Securities and Exchange Commission, Target pointed to four challenges it said could hinder or delay the sale of the portfolio-a “limited number of potential buyers, an inactive market, the complexity of the contemplated transaction, and the portfolio size.”
In addition to announcing the temporary suspension, Target also said Wednesday that it will pay about $2.8 billion to retire the 2008 receivables financing provided by Chase Card Services, a subsidiary of JPMorgan Chase. Target expects that payment, which includes a premium, to reduce fourth-quarter earnings per share by about 8 cents. The company said that it intends to recoup some or all of the premium's cost through lower expected interest expense in 2012 and 2013.
Last year, Chase gave Target the option to retire its receivables financing-an option that expires at the end of this month.
“Our desire to sell the portfolio on appropriate terms remains the same today as it was when discussions began, but we believe that now is not the time to finalize a transaction,” Target Executive Vice President and Chief Financial Officer Doug Scovanner said in a statement. “We believe a pause in discussions until later in 2012, combined with repayment of the Chase Card Services financing, will enable Target to reach an agreement with a high-quality financial partner on acceptable terms.”
Target serves customers at 1,767 stores and on its Web site-and it will open its first Canadian stores in 2013. It is Minnesota's second-largest public company based on revenue, which totaled $67.4 billion in the fiscal year that ended in January 2011.