Hollie Shaw
Sun
TORONTO — Hudson’s Bay Co. agreed Tuesday to sell its credit-card division to GE Money, a unit of General Electric Co., for net proceeds of $370 million.
The country’s oldest retailer, which accepted a friendly offer last month from shareholder Jerry Zucker, did not reveal what it plans to do with the payment.
Analysts say Zucker could put the money toward paying down HBC’s half a billion dollars in debt, or to revamping the store portfolio, one of his stated goals for the chain.
The agreement includes a 10-year alliance in which GE Money will provide HBC with credit, marketing and analytic support, as well as credit servicing and customer care for the retailer’s 3.1 million retail cardholders. HBC will transfer 650 employees to GE as part of the deal.
The owner of the Bay, Zellers and Home Outfitters chains said it will receive an annual revenue stream from the alliance “similar to the historic earnings levels from HBC’s financial services business, which generated $162 million in earnings before interest and taxes in 2004.”
Performance payments from GE Money will be based on the level of credit sales, new accounts and new product introductions, which could include a co-branded credit card, said HBC spokeswoman Hillary Stauth.
A previous HBC deal to create a co-branded card with an “unnamed bank,” rumoured to be Royal Bank of Canada, was cancelled as part of Tuesday’s sale. The net proceeds of the deal don’t include a $50-million break fee HBC will pay to that bank, securitized receivables, transaction costs or taxes. Under a previous agreement, the bank had a first right to match any offer received by HBC for its credit-card business.
Although initially upset about HBC putting the credit division up for sale in October, Zucker says he believes the GE deal reflects a fair value for the asset.
© The Vancouver Sun 2006
