NEW YORK, 17 July 2003 — Citigroup, the world’s biggest financial group, said Tuesday it would pay $3.4 billion upfront to take over retail giant Sears’ credit card business.

It would buy Sears’ $29-billion portfolio of private label and bankcard credit card receivables for $3 billion at closing, representing roughly a 10 percent premium. The deal also included $400 million for fixed and other assets, Citigroup said in a statement.

The acquisition is expected to be completed later this year if cleared by the authorities, Citigroup said, leading to the takeover of 8,300 Sears Roebuck and Co.’s credit business employees and all the related facilities. “This acquisition provides us with an opportunity to take a leadership position in the private label segment and solidify our current bankcard leadership position,” said Citigroup Chairman and Chief Executive Sanford Weill.

“This relationship with Sears gives us unique access to a large distribution channel and customer base. We look forward to growing the value and profitability of this portfolio by applying our expertise.”

Citigroup said the acquisition would boost earnings in the first year. The two companies would enter a long-term marketing and servicing alliance with an initial term of 10 years, they said.

Sears said it expected to receive about $200 million a year in annual performance payments from Citigroup based on items such as new account and credit sales generation activities.

The retailer said it would actually rake in pre-tax cash proceeds of about $6 billion from the deal — the $3 billion premium from Citigroup and another $3 billion of its own capital that had been tied up on its books to back the credit cards. “This is a great deal for Sears, its customers and shareholders,” said Sears Chairman and Chief Executive Alan Lacy. “Our customers will enjoy broader credit and financial products opportunities and continued high levels of service, while Sears gains an additional source of profitability and greater financial flexibility,” he said.

Sears’ domestic credit card business includes 59 million accounts, of which 23 million are active — the eighth largest in the United States. Sears said it would use the proceeds of the sale primarily to retire debt, return cash to Sears shareholders and for general corporate purposes. After retirement of debt, the company said it expected to have $4 billion to $4.5 billion in cash available.

Credit rating agency Fitch Ratings affirmed Citigroup’s ratings of “AA-plus” for long term debt and “F1” for short term. “Fitch Ratings believes Citigroup faces some unique challenges in assimilating this portfolio to meet growth and profitability targets,” it said in a statement. “Although the deal terms include some conditions that limit the risk, the ability of Sears to retain and improve its position as a major retailer will have a significant effect on the prospects for the Sears credit cards,” the agency said. “Immediate benefits available to Citigroup are contingent on its ability to exercise expense control and implement improved risk management practices,” it warned.

Meanwhile, Weill, who helped build Citigroup into the world’s largest financial services firm, is stepping down as chief executive, the firm said yesterday. Weill, 70, will remain chairman but will turn over the reins of chief executive to Charles Prince, 53.

Robert Willumstad, 57, the current president, will become chief operating officer by Jan. 1. Both were elected to the Citigroup board of directors on Tuesday. Weill will remain chairman of the board until the 2006 annual meeting of Citigroup shareholders. He will be “focusing on the company’s relationships with customers and government officials and providing input on strategic issues,” the company said.

In a statement, Weill said the team of 260,000 employees has “forged a new model of a highly successful global financial services company (and) amassed a capital base that makes us a stable presence in world markets.” Weill said the announcement marks the latest move in a three-year-old succession process which he had hoped would result in individuals from inside the company taking up the reins at the financial powerhouse.

Earlier this year, Weill withdrew his name for a position at the New York Stock Exchange after concerns over whether he would represent the interests of smaller stock market investors.