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Nordstrom Sells Credit Card Assets, Rewards Shareholders

Shares of Nordstrom Inc.JWN jumped nearly 3.6% in the after-hours trading session yesterday after the company announced a special dividend and increased its share repurchase authorization. These moves followed the sale of its credit card portfolio to The Toronto-Dominion Bank TD .

In May, this Seattle-based leading fashion retailer had agreed to sell its U.S. Visa and private label consumer credit card portfolio to TD Bank for $2.2 billion. Additionally, both companies had entered into a long-term agreement that makes TD Bank the exclusive U.S. issuer of Nordstrom-brand Visa and private-label credit cards.

Nonetheless, Nordstrom will continue to receive a significant portion of revenues from the credit card accounts. Also, the company will retain its right to perform account-servicing functions, as well as fund and manage its loyalty program, debit cards and employee accounts.

The deal is expected to improve Nordstrom's capital efficiency in addition to enhancing customer experience. The company utilized the proceeds to make an advance payment for its $325 million secured debt, due Oct 2016.

After lowering the debt and deducting transaction costs worth $35 -$45 million, the company has plans to use the remaining proceeds to reward shareholders. Consequently, the company has declared a special cash dividend worth nearly $900 million (or $4.85 per share) and an incremental $1 billion share repurchase program. The dividend will be paid on Oct 27, 2015, to shareholders with record as on Oct 12, 2015.

Purchases under the share repurchase program, which is in addition to the company's existing program approved in Sep 2014, will be made through Mar 1, 2017. The company's ongoing repurchase program had about $591 million worth shares remaining to be bought back as of Sep 30, 2015, and is set to expire on Mar 1, 2016.

The company is expected to provide further details on the financial impact of this transaction along with the fiscal 2015 guidance while reporting its third-quarter fiscal 2015 financial results on Nov 12.

As for TD Bank, this transaction is an extension of its North American credit card business, which has been acquiring similar credit card assets since 2011. Earlier, the bank had acquired Target Corp.'s TGT credit card portfolio in 2013. Prior to that, it had purchased a substantial part of MBNA Canada's credit card portfolio and certain other assets & liabilities from Bank of America Corporation BAC in 2011.

Currently, Nordstrom carries a Zacks Rank #2 (Buy), while TD Bank has a Zacks Rank #3 (Hold).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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