Capital One to acquire Discover in $35 billion deal to create payments giant

Capital One to acquire Discover in $35 billion deal to create payments giant

Capital One Financial Corp. announced on Monday that it has agreed to buy Discover Financial Services, the fourth-largest U.S. payment network, in an all-stock transaction valued at $35 billion.

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The deal, which is expected to close in late 2024 or early 2025, would create a payments powerhouse with over 100 million customers, combining Capital One’s credit card, banking, and digital businesses with Discover’s credit card, banking, and payments network.

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Capital One’s founder and CEO, Richard Fairbank, said in a statement that the acquisition of Discover is “a singular opportunity” to build a payments network that can compete with the largest players in the industry, such as Visa, Mastercard, and American Express.

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Discover’s shareholders will receive 1.0192 Capital One shares for each Discover share, representing a 26.6% premium to Discover’s closing price on Friday. Capital One shareholders will own about 60% of the combined company, while Discover shareholders will own the rest.

The companies said they expect to generate $2.7 billion in pre-tax synergies and boost their adjusted earnings per share by at least 15% in 2027. They also said they plan to maintain the Discover brand and switch some of the cards they issue to the Discover network, which currently has a smaller market share than its rivals.
Discover, which was spun off from Morgan Stanley in 2007, has faced some challenges in recent months, as it increased its provisions for bad loans amid the pandemic and faced regulatory scrutiny over its compliance and risk management practices.

Capital One, which was founded in 1988 as a credit card issuer, has diversified its business over the years, acquiring online bank ING Direct in 2012 and digital money transfer service Paribus in 2016. It also has a partnership with Amazon to offer co-branded credit cards.

The deal is subject to approval by the shareholders of both companies and regulators, including the Federal Reserve and the Department of Justice. The companies said they have received “constructive feedback” from the regulators and are confident that the deal will be approved.

Source : The Wall Street Journal

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