Discover Financial Services to be acquired by Capital One in a $35.3 billion all-stock deal.
- Discover Financial Services will be acquired by Capital One Financial in a $35.3 billion all-stock deal.
- Capital One, which currently utilizes Visa and Mastercard networks, intends to retain the Discover brand.
- The merger of two major credit card issuers in the U.S. would increase Capital One's credit card offerings and deposit base.
is set to acquire in a $35.3 billion all-stock deal.
Under the agreement, Discover shareholders would receive a 26% premium from Discover's Friday closing price of $110.49 in exchange for 1.0192 Capital One shares for each Discover share. The companies expect the deal to close in late 2024 or early 2025, after which Capital One shareholders would hold 60% and Discover shareholders would own 40% of the combined company.
Capital One's acquisition of digital concierge service Velocity Black in June 2020 will enhance its credit card offerings and deposit base, as the two companies merge.
Capital One, which currently employs both the Visa and Mastercard networks, intends to retain the Discover brand.
David Schiff, West Monroe's head of consumer retail and banking, stated that Discover has excelled in attracting deposits and has access to numerous institutions to manage the debit card network and offer services. This enables Discover to gather a substantial amount of deposits, which is particularly crucial in the current market.
CNBC has reached out for comment from both Capital One and Discover.
The Capital One-Discover deal is likely to have significant implications for merger activity in the financial industry, as there are few similar acquisitions, according to Schiff.
Schiff stated that the example showcases the conflict between regulators' desire for greater control and strictness and the competitive pressures being exerted, which are evident in the market.
Amid rising scrutiny and new leadership, Discover announced its CEO, Michael Rhodes, in December 2023.
Discover's market cap is $27.63 billion, while Capital One's market cap is $52.2 billion and its shares are up 4.6% in 2024.
Bloomberg News reported on Monday that Capital One was considering the Discover acquisition.
The Capital One-Discover merger would be one of the largest deals announced so far this year, with Capital One acquiring Discover for $35 billion in January and Endeavor Energy being bought by for $26 billion on Feb. 12.
On Tuesday, Massachusetts Sen. Elizabeth Warren posted on X that she opposes the merger deal and urged regulators to block it, arguing that it would decrease competition and increase credit costs and fees.
Warren stated that this Wall Street deal is hazardous and will negatively affect the working population.
In a Tuesday statement, Sherrod Brown, Chairman of the Senate Banking Committee, emphasized the importance of ensuring the financial system's competitiveness through regulatory measures.
Brown stated that we will closely monitor all developments to prevent the merger from benefiting shareholders and executives at the expense of consumers and small businesses.
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