Target, the second-largest US discount retailer, is in
negotiations to sell about half of its credit card portfolio to an
undisclosed investment partner, in what could be a $4 billion deal.
Target’s total credit card portfolio is valued at about $8.3
billion, the tenth-largest in the US and the largest of any
non-financial company.

Target’s decision to offload part of its card portfolio follows
last September’s business review in which the idea was first raised
(see CI 396). The deal could close during the second quarter of
2008, according to Target.

Target did not disclose the potential buyer, although JPMorgan
Chase has been touted as a natural suitor, given its history in
acquiring the Kohl’s portfolio in 2005.

Target said the sale, if completed, would “generate substantial
liquidity for Target from a single source unrelated to the debt
capital markets”. Target also said that the proposed transaction
would “forge a new, long-term relationship with an investment
partner whose broad experience is expected to result in strategic
and financial benefits to Target over time”.

Mixed interpretations

Target’s strategy to retain half of its portfolio is being viewed
by some industry experts as provision for a potential improvement
in economic and credit market conditions towards the end of 2008
and into 2009, given that the portfolio remains relatively
profitable. However, others see Target’s move as an inevitable
occurrence given the current economic climate, and follows a trend
for private-label US store card market consolidation.

Francesco Burelli, cards and payment specialist at management
consultancy AT Kearney, told CI that Target’s move was no surprise.
“This is another warning sign [for the US private-label industry],”
he said. “What we’ve seen is declining profitability, with
shrinking net yields. All of a sudden, risk is going up and
liquidity is being squeezed, so it’s very difficult to resecuritise
existing portfolios. The industry is going to go through a phase of
correction, because it has been growing in some countries at rates
which were not really sustainable on a real economic basis.”