It might seem odd timing that Target would attempt to sell half of its credit card business while the country is in the middle of a credit crunch, but that is exactly what the retail chain has said it is attempting to do.
According to a report by Bloomberg, Target is in the process of selling part of its $8.3 billion portfolio while seeking to create a "long-term" relationship with the company that acquires the loans.
The retailer has been looking at a possible sale of the credit card unit since activist investor William Ackman began pushing the company to take steps to unlock the value of the chain's stock.
Whether a deal at this time makes sense, analysts agree, depends on what Target gets for the business.
Carol Levenson, director of research at Gimme Credit, wrote in a report, "Would you call this a Solomon-like solution? Target seems to have come up with a plan for its credit card business that doesn't contradict management's longstanding contention that it was integral to the retailing operations but that might placate activist shareholders."
"Without knowing anything more about the use of proceeds, we don't see this as a credit positive," she added.
Gwenn Bezard, an analyst at Aite Group, told The Associated Press that she sees the logic in Target's move.
"It's driven by the economy. It's driven by the fact that you have more and more concerns over the fate of the receivables portfolio," she said. "Target over the past few years has been very aggressive in growing the portfolio."
Discussion Questions: What is your reaction to Target's plan to sell half of its credit card portfolio considering it resisted making such a move for such a long time? Will other retailers follow suit?