CONSOLIDATION: Capital One to Acquire Discover

Posted on 02/20/2024

Capital One Financial Corporation (NYSE: COF) inked a deal to acquire Discover Financial Services (NYSE: DFS). The definitive agreement under is that Capital One will acquire Discover in an all-stock transaction valued at US$ 35.3 billion. Under the terms of the agreement, Discover shareholders will receive 1.0192 Capital One shares for each Discover share, representing a premium of 26.6% based on Discover’s closing price of $110.49 on February 16, 2024. At close, Capital One shareholders will own approximately 60% and Discover shareholders will own approximately 40% of the combined company. Even though some 4,000 banks offer credit cards, the top 10 issuers, include Visa, Discover, and Capital One. These top 10 credit card issuers account for more than 80% of the loans. This concentration of credit card issuers would enable them to increase interest rates they charge on outstanding credit card balances.

Discover has built a global payments network with 70 million merchant acceptance points in more than 200 countries and territories. Discover and Capital One also have large portfolios of both low and subprime U.S. customers.

The transaction seeks to strengthen Capital One’s balance sheet. On a pro forma basis, the combined company would have a CET1 ratio of approximately 14% at closing, and 84% of company deposits would be insured as of year-end 2023.

The transaction is expected to close in late 2024 or early 2025, subject to satisfaction of customary closing conditions, including regulatory approvals and approval by the shareholders of each company.

Upon closing, three Discover Board members, to be named at a later date, will join the Capital One Board of Directors.

Centerview Partners LLC served as financial advisor and Wachtell, Lipton, Rosen & Katz served as legal advisor to Capital One. PJT Partners and Morgan Stanley & Co. LLC served as financial advisor and Sullivan & Cromwell LLP served as legal advisor to Discover.

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