Capital One Financial is poised to acquire Discover Financial Services in a $35.3 billion all-stock transaction.
As per the agreement, Discover shareholders would receive 1.0192 Capital One shares for each Discover share, representing approximately a 26% premium from Discover’s Friday closing price of $110.49.
The companies anticipate the deal’s closure in late 2024 or early 2025, following which Capital One shareholders would possess 60% and Discover shareholders would retain 40% ownership of the combined entity.
This merger between two prominent credit card issuers in the U.S. would broaden Capital One’s credit card offerings and deposit base. Last June, the company acquired digital concierge service Velocity Black, enhancing its premium credit card and luxury market platform.
According to David Schiff, West Monroe’s head of consumer retail and banking, Capital One intends to preserve the Discover brand, considering Discover’s significant deposit-gathering capability and institutional access for debit card network operations and services.
Schiff notes the rarity of analogous acquisitions in the financial sector, suggesting that the Capital One-Discover deal could have far-reaching implications for merger activities within the industry.
He emphasizes the delicate balance between regulatory oversight and market competitiveness in driving such transactions.
The acquisition comes amid mounting challenges for Discover, including regulatory scrutiny and leadership transitions. The appointment of current CEO Michael Rhodes was announced in December 2023.
Discover’s shares have experienced a 1.7% decline year-to-date, resulting in a market capitalization of $27.63 billion. Meanwhile, Capital One boasts a market cap of $52.2 billion, with its shares recording a 4.6% increase in 2024.
Capital One had been contemplating the acquisition of Discover, culminating in this substantial merger, which ranks among the largest deals announced in the current year.
Other notable deals include Synopsys’ $35 billion acquisition of Ansys in January and Diamondback Energy’s $26 billion agreement to purchase privately held oil and gas producer Endeavor Energy, announced on Feb. 12.
