US-based retailer Target has entered into a deal under which it will sell a 47-per cent stake in its credit card receivables to JPMorgan Chase for an initial payment of $3.6 billion.
Target will continue to run its credit card business, which includes a Target Visa card and a store card, while JPMorgan will get the right to a chunk of the future profits from the credit card business in return for the money it pays.
Minneapolis-based Target, one of the last major American retailers to have kept its credit assets, said the transaction should give it enough funds to carry out its business plans, including capital investment and share repurchase, without having to raise debt capital.
The transaction is meant to share the risks of Target's credit card business with JPMorgan and "provides significant liquidity to Target from a single source unrelated to debt capital markets," Target executive vice president and chief financial officer Doug Scovanner said in a statement.
The credit card business contributed 13 per cent of Target's profit in 2007.
The company said the deal was expressly designed to have no impact on Target's customers and Target's team members who provide financial products and services to them.
"This innovative transaction marks the beginning of a long-term credit card relationship between Target and JPMorgan Chase, which we believe will create substantial financial and strategic rewards for both of us over time," Scovanner said in the statement.
Under the agreement, Target and JPMorgan Chase will share the expected profits from the arrangement pro rata to their respective ownership interests, subject to a cap. The deal is expected to close before the end of May.
Investors have been pressuring Target to make a financial move with its assets, including options like selling part of the credit card portfolio, or selling some of its real estate and leasing it back. Hedge fund investor William A Ackman, who holds nearly 10 per cent in addition to stock swaps and options in the Minneapolis-based discount store, was the chief agitator pressuring Target to unwind.