Capital One Acquires Discover in $35.3B Deal

On Monday, Capital One announced a $35.3 billion all-stock deal to acquire Discover Financial Services, a move expected to finalize late this year or early next year, reports Payments Dive. The acquisition would provide Capital One access to an additional 305 million cardholders, quadrupling its presence in the sector. The combined companies would hold a 19% share of the $1.3 trillion revolving consumer loan market, surpassing competitors.

The deal aims to reduce Capital One's reliance on Visa and Mastercard, with whom they currently partner. Despite recent partnership renewals, a transition will take time, as noted by JPMorgan analyst Tien-tsin Huang.

The acquisition could give Discover regulatory credibility amid challenges since July, including a consent order addressing violations and the resignation of CEO Roger Hochschild. TD veteran Michael Rhodes is expected to become Discover's next CEO. However, concerns about regulatory approval have been raised, given heightened scrutiny by the Biden administration. The deal's terms indicate a 26.6% premium for Discover shareholders, who would receive 1.0192 Capital One shares for each Discover share.

The transaction aims to generate $2.7 billion in cost savings by 2027, with both expense and network synergies contributing. Capital One and Discover anticipate the deal to be 15% accretive within three years, with a common equity tier 1 ratio of approximately 14% at closing.