US digital bank Capital One has agreed to acquire credit card issuer Discover Financial Services in a $35 billion stock deal.
Capital One aims to create the largest US credit card company to compete with Wall Street giants such as JPMorgan Chase.
Under the terms of the agreement, Discover shareholders will receive 1.0192 shares of Capital One for each Discover share, representing a 26.6% premium based on Discover's closing price of $110.49 on February 16, 2024. At closing, Capital One shareholders will own approximately 60% and Discover shareholders will own approximately 40% of the combined company.
Capital One previously focused on Visa or Mastercard for its card issuance, but the acquisition of Discover will allow the company to reprioritize and gain more control over pricing as it will be able to get rid of those middlemen, Reuters reported.
"Since the founding of Capital One, we have been committed to building a payments and banking company based on modern technology. Our acquisition of Discover is a unique opportunity to bring together two highly successful companies with complementary capabilities and franchises to build a payments network that can compete with the largest payments networks and companies," said Richard Fairbank, Founder and CEO of Capital One.
"This agreement underscores the strength of our business and is a testament to the hard work of Discover's employees. We look forward to a bright future as part of the Capital One family and providing enhanced capabilities to our loyal customers," said Michael Rhodes, CEO and President of Discover.
The transaction is expected to receive regulatory approval in late 2024 or early 2025.
Some financial experts have said the deal will face regulatory scrutiny, as US authorities oppose bank consolidation that increases systemic risk and hurts consumers through credit contraction.
"I think this deal will face heightened regulatory scrutiny," said Jeremy Kress, a business law professor at the University of Michigan.
"This will be the first major test of bank merger regulation since the Biden administration's executive order to promote competition in 2021," he added.
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