The Canadian lender, which acquired the stake in CTFS for C$500m in 2014, will continue to provide the $1.1bn credit facility to CTFS for the next 18 months, and CTC will become the sole owner of its financial services arm CTFS
Scotiabank sells a stake in CTFS to CTC. (Credit: PiggyBank on Unsplash)
Canada-based Scotiabank has completed the sale of its 20% stake in Canadian Tire Financial Services (CTFS) to Canadian Tire Corporation (CTC) for a total of C$895m ($647m).
The Canadian lender, which acquired the stake in CTFS for C$500m in 2014, will continue to provide the $1.1bn credit facility to CTFS for the next 18 months.
With the current transaction, CTC assumes full ownership of its financial services arm.
The Canadian retailer financed the transaction through existing short-term funding channels, and an 18-month term loan totalling $400m from Desjardins Capital Markets.
CTC will book $328m in charges related to the transaction in its Q3 2023 results, and the transaction will be accretive to its earnings in 2024.
Canadian Tire Corporation president and CEO Greg Hicks said: “This move enables us to expedite key elements of our Triangle Rewards strategy to stay relevant to customers’ changing needs and expand our credit card program to unlock even greater value for shareholders.”
“Loyalty rewards programmes and their integration with financial institutions have evolved significantly since our original deal with Scotiabank. We have invested heavily in Triangle Rewards, and Scotiabank has done the same with its coalition loyalty program.”
CTC will explore strategic alternatives for its financial services business to be undertaken with Goldman Sachs as its financial advisor during 2024.
The company believes that the transaction will help improve its offering to more than 11 million active loyalty members, including its 2.3 million credit card holders.
CTFS plays a key role in CTC’s Triangle Rewards loyalty programme, which represents around 75% of all Canadian Tire Money (eCTM) issued to its members each year.
CTC said that Triangle Rewards is at the centre of its Better-Connected strategy, driving significantly higher sales per member and sustained growth over time.
The Triangle Rewards members spend more than twice as much as non-members, and those with a Triangle credit card are considered CTC’s most valued and engaged customers.
Since 2014, Triangle credit card users increased from 1.8 million to 2.3 million and receivables increased by more than 60% to nearly $7.1bn at the end of Q2 2023, said CTC.
Hicks added: “While we have appreciated partnering with Scotiabank over the past decade, with both Scotiabank and CTC having received significant strategic and financial benefits, concluding this partnership will give us much greater control and flexibility in building out our loyalty program.
“Accelerating issuance of eCTM, including through opportunities with new partners such as Petro-Canada, is key to driving value for members in a rapidly evolving loyalty marketplace.”