Canadian Tire Corp (CTCa.TO: Quote), best known for its automotive and homeware stores, said it would seek a financial partner for its C$4.4 billion credit card portfolio to reduce funding risks.
The company did not provide details but said the proposed partnership would help it in its efforts to integrate its financial services business with its retail operations.
In all likelihood, Canadian Tire is looking to replicated the model Target adopted in the United States with TD. Target sold it’s credit card receivables to TD and TD entered into a long term arrangement to continue funding Target’s newly originated credit card receivables, while Target maintained control over its credit card operations. The two parties then entered into a revenue share arrangement, splitting cash flows generated from the card portfolio. As a result, both parties were doing what they did best, TD used its cheaper access to funds and large balance sheet, and Target continued to run a well managed credit card portfolio.
In all likelihood, Canadian Tire is looking for a similar solution. It would be a similar strategy to Canadian Tire’s REIT deal, which allowed the company to free up cash invested in real-estate, while still being able to enjoy the benefits of its physical store locations.
“As a result of that work, we are now well-positioned to explore an arrangement that would allow us to increase our financial flexibility while continuing to enjoy the substantial contributions of our financial services business,” Chief Executive Stephen Wetmore said in a statement on Thursday.
The company said it expects any such partnership to have little impact on jobs and existing operations.
Canadian Tire’s financial services business contributed 8.4 percent to its total revenue of C$3.02 billion in the quarter ended June.
This model makes perfect sense for Canadian Tire. Only two questions remain, who are they going to partner with and when does Loblaw’s do the same thing with PC Bank and it’s $2 billion credit card portfolio?