Capital One to buy Discover Financial in $35.3-B all-stock deal

NEW YORK/WASHINGTON — Warren Buffett-backed US consumer bank Capital One plans to acquire US credit card issuer Discover Financial Services in an all-stock transaction valued at $35.3 billion to create a global payments giant, the companies said on Monday.

The deal, which is expected to receive intense antitrust scrutiny, would form the sixth-largest US bank by assets and a US credit card behemoth that would compete with rivals JPMorgan Chase and Citigroup.

While Discover has a network that spans 200 countries and territories, it is still much smaller than rivals Visa, Mastercard and American Express.

“This acquisition adds scale and investment, enabling the Discover network to be more competitive with the largest payments networks,” the companies said in a statement.

Discover shareholders will receive 1.0192 Capital One share for each Discover share, representing a 26.6% premium over Discover’s closing price on Friday.

If concluded, Capital One shareholders will own 60% of the combined company, while Discover shareholders will own the rest.

A Capital One/Discover combination would have “significant strategic merit,” Baird equity research analysts said in a note to clients, citing the potential for cutting costs that comes with greater scale, and the benefits of having Capital One credit cards utilize Discover’s network.

The companies said they expect to achieve $2.7 billion in pretax synergies in 2027 that would include cost-cutting and network savings.

Capital One, which counts Buffet’s Berkshire Hathaway as its seventh-largest shareholder with a 3.28% stake, is valued at $52.2 billion. It was the fourth largest player in the US credit card market by volume in 2022 while Discover was the sixth, according to Nilson.

The new board will have three members appointed by Discover. It was not immediately clear how many directors the board would have. —