Capital One to acquire Discover Financial for $35 billion

Capital One has announced it will acquire its long term rival Discover Financial for $35.3 billion.

Capital One to acquire Discover Financial

The acquisition of Discover values the smaller rival’s stock 27% above last weeks closing price. Under the terms of the deal, Discover shareholders would receive 1.0192 Capital One shares for each of theirs, in an all-stock purchase.

“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,” said Richard Fairbank, founder and chief executive of Capital One.

The merger could shake up the US credit card landscape and mark one of the industry’s biggest deals since the 2008 financial crisis.

Capital One and Discover are two of the biggest credit card lenders, behind JPMorgan Chase and Citigroup.

Discover also offers a payment network, making it a competitor with the likes of Visa and Mastercard.

Consolidation in the highly fragmented US banking sector has long been expected but several large players have struggled to successfully integrate and capture the synergies hoped for when two rivals combine.

Capital One and Discover say that the transaction is expected to generate expense synergies of $1.5 billion in 2027 and deliver a return on invested capital of 16% in 2027.

The potential deal comes at a time when US regulators are planning to reform bank merger rules in an effort to boost transparency and increase scrutiny of deals.

This acquisition of Discover is likely to be examined carefully by US antitrust regulators given the large size of the two companies’ credit card businesses.

The companies said they expected the deal to close by late 2024 or early 2025.