Citigroup Inc on Thursday said it agreed to buy $6.6 billion of credit card assets from Federated Department Stores Inc and May Department Stores Co following the merger of the two retailers. Citigroup, the world's largest financial services company, will pay an 11.5 percent premium for two Federated portfolios with a combined $4.4 billion of loans and May's $2.2 billion portfolio. The bank, also the world's biggest credit card lender, expects the transactions to boost its earnings in the first full year after the deals are completed.
"This is part of an ongoing program to buy as many private-label portfolios as they can get their hands on," said Punk Ziegel & Co banking analyst Richard Bove. "I think it's a positive. It's a nice little deal for them." Cincinnati-based Federated said it expects after-tax proceeds of $4.5 billion from the sales. A spokeswoman for the retailer said proceeds, depending on their timing, would be used to fund the acquisition of May or to pay down debt resulting from the take-over.
In the three-part deal between Citigroup and Federated, Citigroup will first acquire $3.2 billion of the retailer's credit card receivables.
Federated will also acquire $1.2 billion of card loans affiliated with its Macy's department store chain from their current owner, General Electric Co's GE Capital Corp. The Macy's loans will be transferred to Citigroup by late April 2006.
Finally, Federated will transfer May's $2.2 billion portfolio to Citigroup 12 months after the merger is completed. The acquisition of May is expected to be completed by the end of October.
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