In a strategic move to gain a competitive edge in the credit card market, Capital One has announced its acquisition of Discover Financial Services for $35.3 billion in an all-stock deal. The agreement, disclosed on Monday evening, offers Discover shareholders over one share of Capital One for each Discover share, presenting a nearly 27% premium based on Discover’s Friday closing share price of $110.49.
Upon completion, current Capital One shareholders are set to hold a 60% stake in the merged entity, while Discover shareholders will retain the remaining 40%. Capital One anticipates the deal’s finalization in late 2024 or early 2025, pending regulatory approvals.
Discover, with a market valuation close to $28 billion, is smaller than major US credit card networks like Visa, Mastercard, and American Express. The acquisition positions Capital One strategically, allowing it to leverage Discover’s network and issue credit cards under the same umbrella. This move is expected to enhance Capital One’s competitiveness against other credit card-issuing banks.
Richard Fairbank, Capital One’s founder and CEO, emphasized that the acquisition aims to “build a payments network that can compete with the largest payments networks and payments companies.” If regulatory approval is secured, the deal could provide Capital One with additional revenue streams from merchant fees.
Capital One currently issues credit cards with various networks, including Discover. The acquisition may lead to a shift of more cards to the Discover network, offering Capital One increased flexibility and market influence. The joint conference call between the companies is scheduled for Tuesday morning at 8:00 am ET.
