Capital One shakes up financial sector with $35.3 billion acquisition of Discover

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Capital One Financial is making waves in the financial world with its recent announcement of acquiring Discover Financial Services in a massive $35.3 billion all-stock deal. The agreement, set to close in late 2024 or early 2025, would see Discover shareholders receiving 1.0192 Capital One shares for each Discover share, representing a significant 26% premium from Discover’s Friday closing price of $110.49.

The merger between Capital One and Discover, both major players in the U.S. credit card industry, is expected to bolster Capital One’s credit card offerings and deposit base. Capital One has been on an acquisition spree, having purchased digital concierge service Velocity Black last year, showcasing its commitment to expanding its market presence.

Despite the merger, Capital One plans to maintain the Discover brand, leveraging Discover’s strong deposit-gathering capabilities and access to institutions for running the debit card network and providing services. This move is seen as strategically important, especially in the current market environment where deposit gathering is crucial.

The Capital One-Discover deal comes at a critical time for Discover, which has been facing regulatory scrutiny and undergoing leadership changes. The appointment of CEO Michael Rhodes in December 2023 reflects Discover’s efforts to navigate through challenging times.

Despite Discover’s challenges, the company’s shares are down only 1.7% for the year, with a market cap of $27.63 billion. In contrast, Capital One’s shares are up 4.6% in 2024, boasting a market cap of $52.2 billion. The merger between Capital One and Discover is poised to be one of the largest deals of the year, signaling a significant move in the financial sector.

(Source: Bloomberg | WSJ | CNBC)

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