In a deal that would combine two of the biggest credit card firms in the country, Capital One said on Monday that it will buy Discover Financial Services for $35.3 billion in all-stock.
According to Matt Schulz, chief credit analyst at LendingTree, “a space that is already dominated by a relatively small number of megaplayers is about to get a little smaller.”
One of the biggest banks in the country, Capital One has $479 billion in assets and offers credit cards through networks managed by Mastercard and Visa. By acquiring Discover, it will increase its client base to over 100 million by gaining access to a credit card network with 305 million cards.
Capital One said on Monday that it will acquire Discover Financial Services for $35.3 billion in all-stock, combining two of the largest credit card companies in the nation.
The head credit analyst at LendingTree, Matt Schulz, states that “a space that is already dominated by a relatively small number of megaplayers is about to get a little smaller.”
With $479 billion in assets, Capital One is one of the largest banks in the nation and provides credit cards through networks run by Visa and Mastercard. By purchasing Discover, it will get access to a credit card network that has 305 million cards, growing its customer base to over 100 million.
Following the announcement last month by the Office of the Comptroller of the Currency that it planned to slow down merger and acquisition approvals, Capital One’s acquisition will mark one of the first trials of regulatory scrutiny on bank transactions.
Mr. Schulz stated, “It’s hard to know which way it would go, but given the money and size of the companies involved, there will definitely be a lot of attention paid to this deal.”
According to David Schiff, a senior partner at West Monroe, a digital services consulting firm, other financial dealings have come under more scrutiny, which has complicated the situation.
Among them is the billions of assets that New York Community Bank bought from Signature Bank during the previous year’s regional banking crisis.
After posting a significant loss for the most recent quarter, New York Community Bank said that it will increase its capital reserves to serve as a safety net against potential issues. Although the declining commercial real estate market is mostly to blame for its problems, Mr. Schiff noted that politicians may use the acquisition as an example of a regulator that moved too quickly to approve it.
A 26 percent premium, based on the closing stock price of Discover on Friday, will be paid by Capital One to Discover stockholders as part of the transaction.
Approximately 60% of the merged business will be owned by Capital One shareholders upon the deal’s closing, which is anticipated in late 2024 or early 2025 and is pending regulatory clearance. The remaining 40% will be owned by Discover shareholders.
At Friday’s market closing, Discover was valued at roughly $28 billion, while Capital One was estimated to be worth over $52 billion.
The agreement is a component of Capital One’s plan to establish a worldwide payments network that would enable it to collaborate directly with small and independent retailers. Additionally, it offers Discover more size to rival other credit card providers. According to Capital One, the agreement would result in pretax savings of $2.7 billion.
Richard Fairbank, the founder, chairman, and CEO of Capital One, stated in a statement, “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 companies.”
Velocity Black is a digital concierge that combines travel, entertainment, dining, and shopping options for customers. Capital One purchased the company in June.
Discover is coming out of a turbulent time. In August, Roger Hochschild, the company’s former CEO, announced his resignation in the midst of a regulatory investigation into credit accounts that had been misclassified. The business announced Michael G. Rhodes as its new CEO in December after announcing in October that it was improving corporate governance. In comparison to the same period the previous year, the company’s earnings in the fourth quarter of 2023 decreased by 62 percent.
In 1985, the Discover card was launched by the former massive retailer Sears. Later, Discover joined Morgan Stanley, and in 2007 the investment bank separated it through an IPO of its own shares.
“Regulators view this as a white knight coming in to help fix a troubled player in the market or whether they view this as a limitation of competition — and therefore something to avoid,” Mr. Schiff said, referring to Discover’s recent difficulties.
