JPMorgan Chase to buy Sears Canada unit

Bank will pay $2.87 billion for credit-card business

September 01, 2005|By BLOOMBERG NEWS

NEW YORK - JPMorgan Chase & Co., the world's second-largest credit-card issuer, agreed yesterday to buy Sears Canada Inc.'s credit-card business for C$3.4 billion ($2.87 billion) in cash and debt. Shares of Sears Canada surged 24 percent, their biggest gain in at least 21 years.

The card business at Sears Canada, the country's No. 3 department store, has about 1,000 employees, 10 million accounts and C$2.5 billion in uncollected credit-card bills, the Toronto-based company said. JPMorgan, the third-biggest U.S. bank, will pay about C$2.4 billion in cash and inherit C$1.1 billion in debt, Sears Canada spokesman Sean MacCormack said.

JPMorgan is battling rivals Bank of America Corp. and Citigroup Inc. for a bigger share of the credit-card market. A spate of acquisitions has swallowed up independent U.S. issuers, including MBNA Corp. as well as the card portfolios of retailers such as Federated Department Stores Inc. With fewer options to expand locally, U.S. banks are looking abroad.

"JPMorgan realized you have to be in the credit-card business in more than one market," said David Robertson, publisher of the Nilson Report, a credit-card industry newsletter. "This is close to home but nonetheless an international venture for them."

Sears Canada will receive C$2.2 billion in net cash proceeds after factoring in the value of the unit's unpaid debts as well as unspecified costs and taxes. The company, in which U.S.-based Sears Holdings Corp. owns 54 percent, will record an after-tax gain of about $650 million from the sale.

JPMorgan also will pay Sears Canada about C$100 million a year to meet certain targets for generating sales and new accounts, the Toronto-based department store said.

Sears Canada's shares rose C$5.85 to close at C$30 in Toronto Stock Exchange trading. JPMorgan fell 31 cents to $33.89 on the New York Stock Exchange.

The deal, expected to close by the end of the year, includes both Sears Canada's private-label cards as well as those co- branded with MasterCard International Inc. The two companies also agreed to a 10-year marketing and servicing pact.

JPMorgan said the purchase will begin contributing to profit next year.

Citigroup bought the credit-card operations of Sears Roebuck & Co., Sears Holdings' predecessor, in 2003.

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