Capital One to Buy Discover Financial in $35 Billion Deal

(Bloomberg) — Capital One Financial Corp. agreed to buy Discover Financial Services in a $35 billion all-stock deal to create the largest US credit card company by loan volume, giving the combined entity a stronger foothold to compete with Wall Street’s behemoths.

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McLean, Virginia-based Capital One will pay 1.0192 of its own shares for each Discover share, a 26.6% premium to the closing price on Feb. 16, according to a statement. The transaction, first reported by Bloomberg News, is expected to complete in late 2024 or early 2025, pending regulatory and shareholder approvals of both firms.

The purchase of Discover ranks as the biggest merger globally this year, surpassing Synopsys Inc.’s roughly $34 billion acquisition of software developer Ansys Inc. announced in January. The deal brings together two storied consumer-finance brands, a combination that will surpass longtime rivals JPMorgan Chase & Co. and Citigroup Inc. by US credit-card loan volume, according to data compiled by Bloomberg Intelligence.

It’s a “singular opportunity” to bring together two companies that can compete with the largest payment networks, said Capital One Chief Executive Officer Richard Fairbank in the statement.

Capital One holders will own about 60% of the combined company and Discover holders the remainder, according to the statement. The acquisition will generate pre-tax synergies of $2.7 billion.

“The main rationale is the fixed costs of technology that result in bigger being better,” said Jay Ritter, finance professor at the University of Florida. “This fact has been reshaping many industries for many years, and I see no reason to think that the trend towards fewer, but larger, firms will end.”

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