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Capital One To Acquire Discover Financial of $35.3 Billion



In an all-stock deal valued at $35.3 billion, Capital One Financial Corp. (COF) has struck an agreement to buy Discover Financial Services (DFS). This would create a payments behemoth that serves over 100 million clients.


KEY KNOWLEDGE
  • A $35.3 billion all-stock merger between Capital One and Discover Financial was announced. With this acquisition, Capital One would become the payments industry titan, with more than 100 million consumers.
  • The acquisition price is 26.6% more than Discover's Friday closing share price.
  • Approximately 60% of the merged business will be owned by Capital One stockholders at the conclusion of the deal.
  • According to Capital One, the purchase will help the combined business create a payments network that can rival those of the biggest payment processors.
  • There has been some unrest at Discover lately. In addition to being under regulatory scrutiny for problems with compliance and risk management, the institution has increased its reserves for poor loans.





    • Capital One also said that the addition of Discover's banking arm "will increase the combined company's scale to compete with the nation's largest banks."

    Richard Fairbank, the founder and CEO of Capital One, stated in a press release late on Monday that "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."


    Discover stockholders will get 1.0192 Capital One shares for each Discover share, per the terms of the agreement. This represents a 26.6% premium over Discover's Friday closing share price. According to the news release, when the deal concludes, shareholders of Capital One would control around 60% of the merged business, while shareholders of Discover will own the remaining portion.

    Discover had a market capitalization of $27.6 billion at the close of trading on Friday, while Capital One's market value stood at $52.2 billion. U.S. financial markets were closed for the Presidents' Day holiday on Monday.

    The merging of the two businesses would provide $2.7 billion in pre-tax synergies and increase adjusted profits per share by at least 15% in 2027, according to Capital One, which anticipates the acquisition to conclude in late 2024 or early in the following year subject to shareholder and regulatory clearance.

    "The combined credit card business will be in an even stronger position to deliver industry-leading products and experiences that span the credit card marketplace across consumers, small businesses, and merchants," the announcement from Capital One stated. Regarding the maintenance of the Discover brand, the firm made no mention of it.


    Over the past few months, Discover has experienced significant upheaval. The lender increased its reserves for loan losses after the firm revealed lower-than-expected quarterly results and issued a warning about the harsher circumstances confronting clients. In the last month, Discover shares have recovered the majority of their losses despite a significant decline following the results announcement.