NEW YORK - Citigroup announced Tuesday that it would buy the credit card business of Sears, Roebuck & Co. for $3-billion, with the deal for the nation's eighth-largest credit card portfolio expected to close before the end of the year.
Sears, which is based in Hoffman Estates, Ill., said it will realize double that amount from the sale of its portfolio, which is valued at about $30-billion. That's because in addition to the $3-billion in cash from Citigroup, it will retain $3-billion in capital it had in the card business.
Sears said that after-tax proceeds of about $4.5-billion would be used to reduce the retailer's debt, for general operations and to "return cash to Sears shareholders."
Citigroup, the nation's largest financial institution, said Sears' credit card business includes 59-million accounts, of which 25-million are active.
Purchase of the portfolio - made up 58 percent of private-label Sears cards and 42 percent of MasterCards - will raise Citigroup's total managed card receivables to nearly $169-billion. The next largest is MBNA's $107-billion portfolio.
The deal must be approved by federal and state regulators.
Shortly after the transaction was announced, the Standard & Poor's credit agency downgraded Sears' debt to BBB from BBB-plus.
"For many years, Sears' credit business has been a vital factor in Standard & Poor's assessment of the company's overall credit rating," wrote S&P analyst Gerald Hirschberg. "The downgrade reflects the absence of this historically important foundation to the credit rating and its operating income (approximately $1.5-billion in 2002), and a greater reliance on a retailing business that has a very challenging future."
