Capital One Financial has agreed to buy Discover Financial for $35.3 billion in an all-stock transaction, the companies said in a statement on Feb. 19.
The purchase, when concluded, will bring together two of the largest credit card companies in the United States to create the biggest in the nation, and likely shake up a payments industry largely dominated by Visa and Mastercard.
Capital One, based in McLean, Virginia, is valued at about $52 billion and is the fourth-largest player in the U.S. credit card market by volume as of 2022, according to the Nilson Report.
Under the deal, Discover shareholders will receive 1.0192 Capital One shares for each Discover share, or roughly a 26 percent premium from Discover’s Feb. 16 closing price of $110.49, according to the two firms.
The companies said they expect the deal to close in late 2024 or early 2025, subject to satisfaction of customary closing conditions.
Once closed, Capital One shareholders—which include Warren Buffet’s Berkshire Hathaway—would own 60 percent of the combined company, with Discover shareholders owning the rest.
The two credit card giants welcomed the deal amid a surge in credit card use among Americans and a rise in card balances as many struggle to keep pace with the soaring cost of living.
Deal Creates Competitive Payments Network
“From Capital One’s founding days, we set out to build a payments and banking company powered by modern technology,” Richard Fairbank, founder, chairman, and CEO of Capital One, said in the statement.“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.
“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.”
The deal brings together “two strong brands with enhanced ability to accelerate growth and maximize value for our shareholders, enabling them to participate in the tremendous upside of the combined company,” Michael Rhodes, CEO and president of Discover, said in a statement.
“This agreement underscores the strength of our business and is a testament to the hard work of Discover employees. We look forward to a bright future as part of the Capital One family and to providing expanded opportunities for our loyal customers.”
Capital One and Discover said the deal is expected to generate expense synergies—or cost savings—of $1.5 billion in 2027, driven by “common business functions partially offset by targeted investments in the Discover network.”
The two firms also expect the deal—likely one of the largest since the 2008 financial crisis—to deliver a return on invested capital of 16 percent in 2027.
The agreement could face regulatory scrutiny after the Justice Department’s antitrust division last year unveiled plans to enhance its review process for bank mergers, part of President Joe Biden’s push toward bolstering competition across the economy, including in the banking sector.
