Target Delaying Decision on Credit Card Business
Target said Wednesday it is taking longer than expected to determine whether to sell its $7 billion in credit card receivables, hampered by current market conditions.
The discount retailer, which had previously said it would make a decision by the end of December, now expects to announce a decision on possible alternative ownership structures for the business in the first calendar quarter of 2008.
"We are not surprised by the news," said Joseph Feldman, a retail analyst with Telsey Advisory Group, of the delay.
"I think if it were not for Bill Ackman, they probably never would be considering (the sale) as publicly as they are."
In July, activist investor Ackman said his fund owned a 9.6 percent stake in Target, and he wanted to speak with management about trying to boost the discount retailer's stock price.
Before Ackman announced his stake, the retailer had repeatedly said it would not sell the card business, which had generated big profits for the company.
But after the disclosure, analysts speculated that Ackman would pressure Target to sell off its credit card portfolio, and in September, Target said it was reviewing "potential ownership alternatives" for its credit card receivables.
Target said it would try to determine whether it or a financial institution was better suited to own the credit-card assets, which include the Target Visa Card and Target Credit Card and other financial products.
Since the announcement, many Wall Street analysts have questioned whether Target can even sell the business since many financial institutions that would be possible buyers of the portfolio are faltering themselves and the Target portfolio is a large one to swallow.
"You're going to have a handful (of institutions) that are able to do this deal," said Robert Hammer, of bank card advisory firm R.K. Hammer. "It's a very fine audience that would be able to digest something so large."
In November, when Target reported third-quarter results, it said it was evaluating "whether the benefits of a potential transaction outweigh its expected dilutive impact on earnings per share."
On Wednesday, it said excluding any possible transaction-related effects, it still expects increased earnings before taxes from the credit-card portfolio in the fourth quarter and throughout 2008.
Its shares fell 1.7 percent to $52.09 in late morning New York Stock Exchange trading.