Bank of Nova Scotia agreed to buy a 20 percent stake in Canadian Tire Corp.’s financial-services business for C$500 million ($460 million) in cash, giving it access to the retailer’s customers.
Scotiabank, Canada’s third-largest lender, will also provide a funding commitment to the business with credit-card receivable financing of as much as C$2.25 billion, the Toronto-based bank said today in a statement. The pact includes a marketing agreement that makes Scotiabank exclusive provider of new financial products to customers of Canadian Tire, the country’s largest sporting goods retailer.
“The partnership here is an important one because Canadian Tire is an iconic company, it’s a company that has similar culture and values to the bank,” Scotiabank Chief Executive Officer Brian Porter, 56, said in an interview. “We’re investing in a high-performing business that fits into our strategy.”
The bank’s shares rose 0.2 percent to C$66.71 at 4:15 p.m. in Toronto, while Canadian Tire slid 0.2 percent to C$107.69 after falling as much as 1.3 percent.
Porter said last month that credit cards were a priority for the bank to help drive earnings. The lender already has alliances with theater-chain owner Cineplex Entertainment LP through its Scene Visa and debit cards and the National Hockey League with its ScotiaHockey NHL Visa card. Scotiabank ranked fourth in Canada with $10.5 billion in outstanding card balances for 2013, according to Nilson Report, an industry newsletter.
“The deal announced today does provide additional exposure to credit cards, which has been a stated objective of Scotia,” John Aiken, a Barclays Plc analyst, said in a note. “From a bottom-line impact, we do not see much of an immediate impact and do not believe that it will capture the market’s imagination like some of Scotia’s previous deals.”
Canadian Tire’s financial-services division is the eighth largest credit-card issuer in Canada, with C$4.4 billion in receivables, 1.8 million active customer accounts and C$12 billion in annual spending volume, according to the statement.
Canadian banks have spent more than C$20 billion in the past five years buying credit-card balances and striking alliances with retailers, including Toronto-Dominion Bank’s deal with Target Corp. for U.S. cards and Royal Bank of Canada’s 2012 purchase of a MasterCard portfolio as part of a co-branding deal with pharmacy chain Shoppers Drug Mart Corp.
Canadian Tire, based in Toronto, announced Aug. 8 that it was seeking a financial partner.
“We’ve been doing business with Canadian Tire since 1985, they are old business partners,” Robin Hibberd, Scotiabank’s executive vice president of retail products and services, said in an interview. “We’ve been in touch with them for a long time and discussions about different ways we could partner long before this process started.”
Canadian Tire has an option to sell up to an additional 29 percent of the business to Scotiabank within the next 10 years at fair-market value, the two companies said in the statement. The deal announced today is expected to be completed by Sept. 30 and add “modestly” to earnings, the bank said.
(An earlier version of this story corrected Canadian Tire’s receivables and annual spending to Canadian dollars.)