Target, everyone’s favorite cheap-chic retailer, has a big ticking time bomb on its balance sheet. After rapidly expanding its in-store credit card program over the past year, taking on questionable risks, the company is now desperately trying to offload the decaying $8.6 billion portfolio. According to news out today, J.P. Morgan has stepped up and is interested in acquiring roughly 50% of the Target Red card and Target Visa accounts.
No doubt this was spurred by activist investor William Ackman, who back in December snatched up a 10% share in the company through his Pershing Square hedge fund. Ackman pushed management hard to sell the cards business, but they replied that “market conditions” were delaying the decision. Well, unless I missed something, the “market conditions” have been getting a heck of a lot worse since then. So why sell now? With the big banks hoarding cash, margins being called, and blood on the Street, the terms couldn’t have gotten any sweeter.
Unfortunately, details aren’t forthcoming as the company’s press release describing the deal was rather vague. Portales Partners analyst William Ryan noted “the company created more confusion than it provided detailed information.” Everyone is still trying to figure out what’s going on and determine whether this is good news or not.
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