Capital One acquires Discover for $35 billion, creating a credit card and payments powerhouse

Capital One acquires Discover for $35 billion, creating a credit card and payments powerhouse

Capital One Financial announced on Monday that it has agreed to buy Discover Financial Services for $35 billion in stock, a deal that would combine two of the largest credit card issuers and lenders in the U.S. and challenge the dominance of Visa and Mastercard in the payments industry.

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The transaction values Discover at nearly $140 per share, a 27% premium over its closing price on Friday. Discover shareholders will receive Capital One shares in exchange for their Discover shares, and Capital One will assume Discover’s debt. The deal is expected to close in late 2024 or early 2025, subject to regulatory approvals and customary closing conditions.

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The merger would create a credit card and payments giant with more than $600 billion in assets and $450 billion in deposits, serving more than 100 million customers across various products and segments. Capital One and Discover are both known for their cash back and travel rewards programs, as well as their online banking and lending platforms.

The deal would also enhance Capital One’s payments network, which currently relies on Visa and Mastercard to process transactions for its credit cards. Discover operates its own payments network, which is the fourth-largest in the U.S. behind Visa, Mastercard, and American Express. By combining forces, Capital One and Discover could potentially offer lower fees and more benefits to merchants and consumers, and compete more effectively with the established players.

“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,” said Richard Fairbank, the chairman and CEO of Capital One, in a statement.

The deal comes at a time when credit card usage and borrowing are on the rise, as Americans cope with inflation and the economic recovery from the pandemic. However, both Capital One and Discover have also faced higher loan losses and delinquencies, as some customers struggle to repay their debts. The companies said they expect to achieve annual cost savings of $1.6 billion by 2027, as well as revenue synergies from cross-selling and innovation.

The deal is likely to face scrutiny from regulators and consumer groups, who may raise concerns about the impact of the consolidation on competition, pricing, and consumer choice. The Biden administration has appointed several officials who are known for their tough stance on antitrust and consumer protection issues, such as FTC Chair Lina Khan and CFPB Director Rohit Chopra.

“The deal also poses massive antitrust concerns, given the vertical integration of Capital One’s credit card lending with Discover’s credit card network,” said Jesse Van Tol, president and CEO of the National Community Reinvestment Coalition, in a statement. “We urge the Department of Justice and the Federal Reserve to closely examine this deal and its implications for consumers and the financial system.”

Source : CBS NEWS

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