26 January 2015

Target Canada's interlocking relationships

Going back to the Pre-Filing Report submitted by Target Canada's imminent Monitor, here are some interesting aspects as to how an organization like that is structured.


Four banks were involved:
  • Royal Bank of Canada
  • Toronto-Dominion Bank
  • JPMorgan Chase
  • Bank of America
 Bank of America was the prime banker, into and out of which all funds ultimately flowed:
  • CAD credit, debit and gift card transactions flowed through deposit-taking accounts at TD, which were swept into concentration accounts.
  • Other CAD and USD  receipts flowed through deposit-taking accounts at RBC, which were swept into their respective concentration accounts.
  • Funds from TD and RBC were transferred to the Bank of America on an "as needed" basis, in order to fund Target Canada's operations.
  • There was an account at JPM dedicated to overseas vendor payments, which was funded out of the Bank of America.
  • Bank of America handled all disbursements through several accounts (segregate according to method of payment and currency type), which were swept into concentration accounts. There was also a master account for currency conversion and funding JPM payments, as well as an account dedicated to payments to Starbucks under its licensing agreement for in-store sales.
There is nothing unusual about such arrangements - in fact, I first came across similar structures in the early 1980s, and they were very effective then in managing complex series of transactions. It is interesting, though, that the Canadian banks played an essentially subordinate role here.

Intercompany agreements

There was a master agreement in effect between Target Canada and one of the Target US operating subsidiaries that covered an extremely broad range of support services as well as a license for Target's intellectual property. The support staff were located at Target's head office in Minneapolis, as well as in India. It's interesting to observe that they were only in the process of obtaining approval from the CRA for an advance pricing agreement to assure that fees payable under the APA would be regarded as being at arm's-length. After over two years, one would think that such approval would have already been received.

There were also intercompany agreements in effect for the secondment of employees from Target US operations to Target Canada, where connected expenses were reimbursed, as well as for the management of its leased properties, its buying agency, and its design and development services.

All of these arrangements are quite normal in multinational companies, and they should be used more in Canadian-owned enterprises. That may tie in with the hollowing-out effect I mentioned previously.

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