Target Corp. agreed to sell its credit card business to TD Bank Group for about $5.9 billion.
The deal will effectively get Target out of the back end of the credit card business — a step most retailers who dabbled in holding credit card receivables have already taken. The ultimate price on the transaction will be equal the total gross value of the portfolio’s outstanding receivables when the deal closes in the first half of next year.
Target’s third-quarter bottom line will show a roughly $150 million pretax gain as the company accounts for the credit card receivables as “held for sale.” And then after closing, the retailer will see a pretax gain of $350 million to $450 million. About 90 percent of the proceeds from the deal will go to pay down debt.
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The two companies also entered into a seven-year agreement that will have TD underwriting and funding Target credit card and Target Visa receivables in the U.S. The retailer will continue to service the accounts while TD handles risk management.
Shares of Target rose 0.7 percent to $62.65 Tuesday.