Today, Capital One Financial Corporation has received formal approval on its proposed acquisition of Discover Financial Services. The value of this huge merger is an impressive $35.3 billion. The Federal Reserve and Office of the Comptroller of the Currency have both formally approved the tenuous transaction. This acquisition will increase Capital One’s deposit funding while expanding its credit card portfolio.
Just a few months later, in February 2024 the two megabanks publicly communicated their agreement to merge. This decision is undoubtedly the most significant of its kind for U.S. credit card issuers. Capital One’s indirect acquisition strategy will include Discover Bank, putting the combined firms in position to expand their collective geographic market reach even further.
Current stockholders of Discover will be entitled to receive 1.0192 shares of Capital One. That would be for each share of Discover that they own. This transaction constitutes a 26% premium for the announced deal based on Discover’s closing price of $110.49 at the time of the announcement. When the transaction is finalized, Capital One shareholders will hold 60% of the new combined company. At the same time, Discover shareholders will hold on to 40%.
As such, the merger will not close before May 18, 2024. Both companies confirmed this by way of a joint statement yesterday. Combined, this transaction will create the second largest credit card issuer in the country by purchase volume. It will extend their market dominance even more.
In an official statement regarding the approval process, the Federal Reserve noted, “The Board evaluated the application under the statutory factors it is required to consider, including the financial and managerial resources of the companies, the convenience and needs of the communities to be served by the combined organization, and the competitive and financial stability impacts of the proposal.”
The merger is emblematic of some of the most troubling trends in the banking industry. Institutions are building their capacity right now to better serve the changing expectations of their customers. Industry analysts are watching this move with great interest, expecting it to have major effects for both companies and their customers.
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