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Hoffman Estates, Ill.-based Sears, Roebuck & Co. said Tuesday it inked a definitive agreement with Citigroup to sell its credit and financial products business for approximately $32 billion.
The price represents roughly a 10 percent premium to Sears’ $29 billion gross domestic credit card receivables portfolio. While the transaction was approved by the board of directors at both companies, it is still subject to regulatory review and closing conditions.
“The whole profile of the company has changed,” noted Fitch Ratings fixed-income analyst Philip Zahn in a telephone interview. “They will eliminate their credit card business, but pay off most of their debt. So they’re left with a stronger balance sheet, but going forward, they’ll also be a more cyclical company as a pure-play retailer.”
Expected to close by the end of the year, the deal should net Sears’ pretax cash proceeds of about $6 billion, or roughly the sum of a $3 billion premium on receivables and approximately $3 billion of the retailer’s net invested capital.
Proceeds will be used primarily to retire debt, return cash to shareholders and for general corporate purchases. After the retirement of debt, the firm will have available between $4 billion and $4.5 billion in cash. Sears will carry approximately $1.5 billion of debt, net of cash reserves held for future paydown of remaining outstanding debt.
Once it’s shed the business, which last year produced sales of $5.67 billion and operating profits of $1.5 billion, Sears will proceed solely as a retailer.
Retail hasn’t been an easy business for many chains and department stores in recent months, and Sears has reflected the industry’s struggles with comparable-store sales declines of 1.8 percent in June and 1.9 percent in May.
Alan Lacy, chairman and chief executive of Sears, said in a statement the transaction would “create significant value for our investors by accelerating progress toward building a Sears that is completely focused on growing our core retail and related services business, further simplifying our organization, strengthening our financial position and returning substantial proceeds to shareholders.”