Capital One, a prominent credit card company, has announced its plans to acquire Discover in an all-stock transaction valued at $35 billion. This merger would consolidate two of the largest credit card issuers in the United States.
Richard Fairbank, Chairman and CEO of Capital One, expressed his optimism about the acquisition in a 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," he said. According to AP News, Capital One's decision is predicated on the assumption that Americans will continue their prevalent use of credit cards and maintain balances on them. In the final quarter of 2023, American consumers held a record $1.13 trillion in credit card debt. The average interest rate on bank-issued credit cards currently stands at around 21.5%, marking its highest level ever.
Under the terms of this transaction, Discover shareholders are set to receive Capital One shares valued near $140 each - a significant increase from their closing price of $110 on February 16th. As reported by AP News, this deal could provide Discover's payment network with a major credit card partner, potentially enabling it to regain its competitive edge in the sector. At present, Visa and Mastercard largely monopolize the U.S. credit card industry.
Subject to antitrust approval, Capital One shareholders will hold 60% ownership in the merged entity while Discover shareholders will own the remaining 40%. The companies anticipate achieving $2.7 billion in pre-tax synergies by 2027 through cost reductions and savings via network chains. According to Reuters, Capital One expects regulatory approval for this deal by late 2024.
