Following AT&T’s decision to sell its credit card portfolio to Citibank yesterday, the nation’s number one issuer re-asserted its industry leadership. In an analysts’ meeting following the announcement, Citibank said it will not only beef up the value of the Citibank-AT&T Universal card program but will also launch a replacement product for the Citibank Ford VISA/MasterCard program very soon. The cobranded Ford program will formally end its rewards program Dec 31. Citi says its replacement card will exceed the value proposition of the current Ford card. With yesterday’s acquisition Citibank’s three major cobranded programs will comprise nearly half of Citi’s total U.S. portfolio. AT&T Universal will add 13.6 million accounts or 18 million cardholders to Citi’s portfolio. The Ford program has more than 6 million cardholders and the American Airlines AAdvantage program has about 2 million cardholders.
In clarifying the deal with AT&T, Citibank indicated it is not bound to operate the AT&T Universal card as a separate unit and will begin integrating the accounts soon after the deal closes in the second quarter of next year. Citi also justified the 18% premium it paid by saying the AT&T program was under-developed in the U.S. and has significant potential as a global card. Both parties entered into a 10-year cobranding and joint marketing agreement following the purchase agreement. Citi also indicated it will most likely begin repricing the AT&T Universal card soon after the closure but is obligated by the deal to honor the no-annual- fee-for-life pledge for existing cardholders.
More financial details on yesterday’s deal: Citibank is paying $3.5 billion in cash which includes $1.0 billion in book value. The $2.5 billion premium includes $2.2 billion for receivables to be amortized over 10 years and $300 million for goodwill to be amortized over 15 years. Although not disclosed, the cobranding/marketing agreement calls for Citi to shell out an additional $400 million to AT&T over the ten year term.
Citibank’s leadership has been eroding since 1992. At one point the issuer was losing 100,000 cardholders per month. Citi repriced its entire portfolio and entered into several cobranded programs during the past five years but never developed the momentum of the industry’s brightest stars: MBNA and First USA. Yesterday’s deal clearly gives Citibank more distance from its competitors but time will tell if it can truly harness the current synergy.Details