Capital One has announced the acquisition of Discover Financial Services.
The mentioned deal will cost $35.3 billion. As a result of the acquisition of the financial company, the Virginia-based bank will gain a significant competitive advantage. This means that Capital One will strengthen its position in the credit card market.
The deal to acquire Discover Financial Services became known last Monday evening, February 19. The terms of this business agreement stipulate that the shareholders of the financial company, which will soon become the property of Capital One, will receive slightly more than one security of the lender for each share of Discover Financial Services owned by them. In this case, an almost 27% premium is provided. It should be noted that the mentioned advantage arises against the background of comparison with the value of shares of a financial company, which amounted to $110.49 per security at the close of trading last Friday, February 16.
The successful implementation of the deal will mean that the current shareholders of Capital One will own 60% of the shares of the combined firm. At the same time, holders of Discover Financial Services securities will receive the remaining 40% in the event of a favorable scenario in the context of the materialization of a business agreement of acquisition.
Capital One has stated that the deal will be completed in late 2024 or early 2025.
The market valuation of Discover Financial Services is almost $28 billion. In terms of the scale of its activities and such a parameter, which can be described as the strength of its position in the industry, this company is significantly inferior to its three main competitors – Visa, Mastercard, and American Express. The specified brands are the leaders of the sphere of credit cards in the United States and at the same time belong to the category of the largest players of the corresponding area on a global level. Such companies can be described as a kind of liaison between card issuers and merchants for whom they set a fee.
Combining Discover Financial Services, which issues its own credit cards, with Capital One will give the bank an advantage over competing issuing lenders, including JPMorgan Chase, Bank of America, and Citigroup. It is worth noting that the financial institutions itemized in the rivals category do not process transactions themselves.
Richard Fairbank, founder, and CEO of Capital One, said on Monday that implementing the deal to acquire Discover Financial Services will create a payment network that can compete with business structures of similar functional purpose and companies providing concerned services.
The merger of a bank and a financial company must be approved by regulators. If a positive response is received from watchdogs, Capital One, in addition to strengthening its competitiveness, will also have a new source of revenue from the merchant fees it collects.
Currently, the bank issues Mastercard, Visa, and Discover Financial Services credit cards. The media suggest that after the implementation of the deal, among the cards issued by Capital One, the number of switches to the network of the brand, which the lender intends to acquire, will increase.
As we have reported earlier, Walmart Suit Seeks to End Capital One Card Relationship.
