Capital One acquires Discover

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Capital One is set to acquire Discover Financial Services in a significant all-stock deal valued at $35.3 billion, marking a major consolidation in the U.S. credit card industry. This acquisition will merge two of the largest credit card companies in the United States, aiming to create a payments network capable of competing with the largest payments networks and companies globally4. Under the terms of the agreement, Discover shareholders will receive 1.0192 Capital One shares for each Discover share they own, representing a 26.6% premium over Discover's closing price on the Friday before the announcement. Upon completion, Capital One shareholders will own approximately 60% of the combined company, while Discover shareholders will own about 40%4. The deal is expected to close in late 2024 or early 2025, subject to regulatory and shareholder approvals. It is anticipated to face intense scrutiny from regulators, especially under the Biden administration, which has shown a keen interest in reviewing bank mergers for antitrust issues more comprehensively4. The acquisition is projected to generate significant financial and strategic benefits. It is expected to create network synergies of $1.2 billion by 2027, driven by adding Capital One debit and selected credit card purchase volume to the Discover network. The transaction is also forecasted to be more than 15% accretive to adjusted non-GAAP EPS in 2027 and deliver a return on invested capital of 16% in the same year, with an internal rate of return exceeding 20%5. This merger will not only combine the strengths of both companies but also aims to enhance their competitive position in the global payments landscape. Discover, known for its payment network with 70 million merchant acceptance points in over 200 countries, will benefit from Capital One's technology, customer base, and data ecosystem. The combined entity is positioned to deliver enhanced value to consumers, small businesses, and merchants, leveraging a globally competitive payments network5. Capital One's acquisition of Discover is seen as a strategic move to expand its reach and capabilities in the credit card and payments sector, building on its history of acquisitions and technological innovations. The merger is expected to strengthen Capital One's balance sheet and further its commitment to delivering attractive returns and making a positive difference in communities5.
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