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Alliance Data (ADS) Declares Tax-Free Spinoff of LoyaltyOne

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Alliance Data Systems Corporation plans to spin off one of its business segments, LoyaltyOne. The move is in tandem with Alliance Data's strategic focus on becoming a leading payment and lending solutions business. The spin-off is expected to be completed by the end of 2021.

The LoyaltyOne segment provides coalition and short-term loyalty programs through its Canadian AIR MILES Reward Program and BrandLoyalty.

Two U.S.-based, publicly traded companies namely Alliance Data and Spinco will be formed following the spin off. They will be well-poised to seek growth opportunities and build long-term value.

The shareholders of Alliance Data will be entitled to 81% of the shares of Spinco. It will be tax-free to Alliance Data and its shareholders for U.S. federal income tax purposes.

Alliance Data will retain nearly 19% of the shares of Spinco following the spin off, with the intent to monetize that stake to provide for incremental corporate debt reduction at Alliance Data.

With spin off, Spinco is expected to complete a debt financing and pay a dividend of the net proceeds to Alliance Data. These net proceeds will be utilized by Alliance Data to reduce its corporate debt.

Alliance Data’s top line has decreased over the last two years and the trend continued into the first quarter of 2021. Both Card Services as well as LoyaltyOne segment generated lower revenues. Revenues decreased 11% in the first quarter of 2021 in the LoyaltyOne segment as revenues from short-term loyalty programs decreased due to a decline in programs in markets across most regions owing to the impact of COVID-19.

Moreover, redemption revenues and servicing revenues in Alliance Data’s coalition loyalty program were negatively impacted by 16% decline in AIR MILES reward miles issued and 26% decline in AIR MILES reward miles redeemed.

Furthermore, the sale of Precima in January 2020 resulted in a $1.9 million decrease in revenues.

Also, the company anticipates revenues in 2021 to be down in low single-digits due to the impact from lower receivables.

In the Card Services segment, the top line was affected due to a decline in credit card and loan receivables due to higher payment rates, lower sales volumes as a result of COVID-19 and the sale of a credit card portfolio in 2020. Also, decrease in yield due to lower late fees resulting from a lower level of delinquencies, and interest rate cuts in 2020 led to the poor performance of the segment in the first quarter.

Therefore, this spin off will enable the two independent, publicly traded companies, Alliance Data and Spinco to enhance their business capabilities and they will be well poised for future growth. The transaction is also expected to boost Alliance Data's balance sheet and enhance key ratios.

Moreover, with this spin off, Alliance Data will be able to continue with its strategic transformation, which is intended to deliver long-term, sustainable value for stockholders, associates, partners and customers.

Some other stocks from the finance sector include Equifax, Inc. (EFX - Free Report) , Evertec, Inc. (EVTC - Free Report) and Usio Inc (USIO - Free Report) .

Equifax beat estimates in the trailing four quarters by 19.30%, on average.

Evertec beat estimates in the trailing four quarters by 23.9%, on average.

Usio beat estimates in the trailing four quarters by 24.41%, on average.

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