Capital One buying out Discover for $35 billion all-stock deal
Capital One is planning to buy out Discover Financial Services for over $35 billion in an all-stock deal by the start of next year.
The acquisition, according to ABC News, would combine two large, national credit card companies in an industry handled by both Visa and Mastercard.
In addition, it merges two companies with similar customer profiles — those looking for cash back or travel reward programs — against credit cards companies dominated by JPMorgan Chase and American Express, per AP News.
Once completed, the combined companies would form the sixth-largest U.S. bank based on assets, reported Reuters.
What was shared in the company’s statement
Capital One’s press release from last Monday revealed that Discover shareholders will receive a little over one Capital One share for each Discover share previously owned, representing a “premium of 26.6% based on Discover’s closing price premium of $110.49 on February 16, 2024.”
Reported CNN, Capital One shareholders — after the acquisition — will own a 60% stake in the soon-to-be company, while Discover shareholders will own 40%.
“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,” stated Richard Fairbank, founder of Capital One, per the press release.
Farbank added, “Through this combination, we’re creating a company that is exceptionally well-positioned to create significant value for consumers, small businesses, merchants, and shareholders as technology continues to transform the payments and banking marketplace.”
CEO and President of Discover, Michael Rhodes, stated in the press release, “We look forward to a bright future as part of the Capital One family and to providing expanded opportunities for our loyal customers.”
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The acquisition’s impact on consumers
According to NPR, Discover Financial Services is “accepted at 70 million merchants across 200 countries and territories,” but it has the least outreach “out of the four U.S.-based payment networks” of Visa, Mastercard and American Express.
Capital One, on the other hand, is the 12th largest U.S. bank with over $470 billion in assets, reported Al Jazeera.
From this combination, per CNN, having the companies together can give a “major leg up” against its card-issuing competition which “don’t process transactions themselves.”
In fact, as reported by Axios, both Capital One and Discover are in the top 10 of the majority of loans issued in the U.S.
Currently, Capital One issues credit cards through Mastercard and Visa, but from this acquisition, it’s likely more cards will get switched over and issued through the Discover network, according to CNN.
However, CBS News shared that it’s unknown if Capitol One will utilize the Discover payment system, or instead set up a payment network allowing side-by-side use of Discover and a second payment network similar to Visa.
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