Capital One Financial is gearing up to acquire Discover Financial Services in a massive $35.3 billion all-stock deal, as the companies revealed. The merger is expected to shake up the financial sector, with Discover shareholders set to receive 1.0192 Capital One shares for each Discover share, representing a hefty 26% premium over Discover’s closing price of $110.49 on Friday. The deal is slated to finalize in late 2024 or early 2025, at which point Capital One shareholders will dominate the ownership, holding 60% of the combined company, while Discover shareholders will retain 40%.
This move is poised to significantly bolster Capital One’s credit card offerings and deposit base, solidifying its position among the top credit card issuers in the U.S. In a bid to diversify and enhance its services, Capital One acquired digital concierge service Velocity Black, a premium credit card, and luxury market platform, in June last year. David Schiff, West Monroe’s head of consumer retail and banking, highlighted Discover's strength in deposit gathering, citing its access to a wide range of institutions for running the debit card network and providing services, a crucial asset in the current market landscape.
The Capital One-Discover deal is somewhat unprecedented in the financial industry, with few comparable acquisitions for guidance. According to Schiff, this merger is likely to set the tone for future merger activity within the sector, reflecting the delicate balance between regulatory control and competitive demands in the market. This acquisition comes at a crucial time for Discover, which has been facing increasing pressure, including regulatory scrutiny and recent changes in leadership, with Michael Rhodes taking over as CEO in December 2023.
Discover’s shares have experienced a 1.7% decline for the year, translating to a market cap of $27.63 billion, while Capital One boasts a market cap of $52.2 billion, with its shares up 4.6% in 2024. The acquisition rumors were first reported by Bloomberg News on Monday, adding to the flurry of activity in the financial markets. This deal would mark one of the largest transactions of the year, following Synopsys’ $35 billion acquisition of Ansys in January and Diamondback Energy’s $26 billion deal to acquire Endeavor Energy, announced on February 12th.
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