Capital One in deal for Discover
$35b purchase would combine 2 of biggest credit card firms
Capital One announced on Monday that it would acquire Discover Financial Services in an all-stock transaction valued at $35.3 billion, a deal that would merge two of the largest credit card companies in the United States.
“A space that is already dominated by a relatively small number of megaplayers is about to get a little smaller,” said Matt Schulz, chief credit analyst at LendingTree.
Capital One, with $479 billion in assets and more than 100 million customers, is one of the nation’s largest banks, and it issues credit cards on networks run by Visa and Mastercard. Acquiring Discover would give it access to a credit card network of 305 million cardholders. The country’s four major networks are American Express, Mastercard, Visa, and Discover, which has far fewer cardholders than its competitors.
As part of the acquisition, Capital One would pay Discover shareholders a 26 percent premium based on the company’s closing stock price on Friday. At the close of the deal, which is subject to regulatory approval and is expected in late 2024 or early 2025, Capital One shareholders would own approximately 60 percent of the combined company and Discover shareholders would own the rest.
Discover was valued at about $28 billion when the market closed on Friday, and Capital One was valued at about $52 billion.
The deal is part of Capital One’s strategy to build a global payments network, helping it work directly with merchants and small businesses. And it gives Discover greater scale to compete with other credit card companies. Capital One said the agreement would generate $2.7 billion in pretax savings.
“Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises and to build a payments network that can compete with the largest payments networks and payments companies,” Richard Fairbank, founder, chairman, and chief executive of Capital One, said in the statement.
In June, Capital One acquired Velocity Black, a digital concierge company that brings together travel, entertainment, shopping, and dining offerings for consumers.
Discover is emerging from a period of turbulence. The company’s former chief
executive, Roger Hochschild, stepped down in August amid a regulatory review of incorrectly classified credit accounts. In October, the company said it was taking steps to improve its corporate governance, and in December, it announced its new chief executive, Michael G. Rhodes. The company’s profit in the fourth quarter of 2023 fell 62 percent from the same period the year before.
The once-giant retailer Sears introduced the Discover card in 1985. Discover later became a part of Morgan Stanley before the investment bank spun it out through an initial public offering of stock in 2007.
The acquisition by Capital One will be one of the first tests of regulatory scrutiny on bank deals since the Office of the Comptroller of the Currency said last month that it intended to slow down approvals for mergers and acquisitions.
“It’s hard to know which way it would go, but there will certainly be a lot of attention paid to this deal because of the money and magnitude of the companies involved,” said Schulz.