Capital One to buy Discover Financial in $35.3 billion all-stock deal

By Anirban Sen and Michelle Price

NEW YORK/WASHINGTON (Reuters) -Warren Buffett-backed U.S. consumer bank Capital One plans to acquire U.S. credit card issuer Discover Financial Services in an all-stock transaction valued at $35.3 billion to create a global payments giant, the companies said on Monday. The deal, which is expected to receive intense antitrust scrutiny, would also form the sixth-largest U.S. bank by assets and a U.S. credit card behemoth that would compete with rivals JPMorgan Chase and Citigroup.

While Discover has a network that spans 200 countries and territories, it is still much smaller than rivals Visa, Mastercard and American Express.

“This acquisition adds scale and investment, enabling the Discover network to be more competitive with the largest payments networks,” the companies said in a statement.

Discover shareholders will receive 1.0192 Capital One share for each Discover share, representing a 26.6% premium over Discover’s closing price on Friday.

If concluded, Capital One shareholders will own 60% of the combined company, while Discover shareholders will own the rest.

The companies said they expect to achieve $2.7 billion in pre-tax synergies that would include cost-cutting and network savings.

The new board will have three members appointed by Discover. It was not immediately clear how many directors the board would have.

Capital One, which counts Buffet’s Berkshire Hathaway as its seventh-largest shareholder with a 3.28% stake, is valued at $52.2 billion. It was the fourth largest player in the U.S. credit card market by volume in 2022 while Discover was the sixth, according to Nilson.

HIGHER SCRUTINY

The deal is expected to be approved by regulators in late 2024 or early 2025, Capital One said.

But it comes at a time when Democratic President Joe Biden’s administration has focused on boosting competition in all areas of the economy, including a 2021 executive order aimed at bank deals, merger experts said.

Story continues

“I predict that this…