Canadian Tire Corp. (CTC) reported it bought back Scotiabank’s 20 percent stake in its financial services arm in a cash transaction valued at CN$895 million ($647.14 mm) and is reviewing alternatives for its financial services component. CTC made the moves, in part, to better support its loyalty program.

The parent of SportChek is also reviewing alternatives for its financial services arm.

The Bank of Nova Scotia had purchased a stake in Canadian Tire Financial Services (CTFS) for C$500 million in 2014. CTC said the transaction will enhance its flexibility in delivering added value to its more than 11 million active members, including its 2.3 million credit card holders. The retailer also said CTFS plays a pivotal role in its Triangle Rewards loyalty program, representing approximately 75 percent of Canadian Tire Money (eCTM) issued to its members annually.

Canadian Tire added that Triangle Rewards is a cornerstone of CTC’s Better Connected strategy, driving higher sales per member and sustained growth over time. CTC reported that Engaged Triangle Rewards members spend, on average, more than twice as much as non-members, and those with a Triangle credit card represent some of CTC’s most valued and engaged customers.

“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,” said Greg Hicks, president and CEO.

Hicks added, “Loyalty rewards programs 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. 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.”

CTC will evaluate strategic alternatives for its financial services business with Goldman Sachs as the company’s financial advisor during 2024. Consideration will be given to the optimal ownership structure of the CTFS business and driving sustainable value in the Triangle Rewards program and credit card portfolio, building on CTFS’ strong track record of long-term growth.

Since 2014, the number of Triangle credit card holders has grown from 1.8 million to 2.3 million, and receivables have increased by more than 60 percent to approximately CN$7.1 billion at the end of Q2 2023. In 2022, the financial services business ranked as Canada’s seventh largest issuer of credit cards by receivables outstanding, generating CN$442 million of income before income taxes.

Scotiabank will continue to provide a committed credit facility of $1.1 billion to CTFS for the next 18 months.

CTC will record a charge of CN$328 million related to the transaction, equating to CN$5.88 per share, which will be reflected in the company’s Q3 2023 results. The transaction will be accretive to normalized earnings in 2024.

The CN$895 million consideration will be funded by CTC’s existing short-term funding channels, supplemented by a CN$400 million, 18-month term loan from Desjardins Capital Markets.

CTC’s banners include Canadian Tire, Mark’s, SportChek, Hockey Experts, Sports Experts and Atmosphere. In addition, CTC owns and operates Helly Hansen.

Photo courtesy CTC