Major American financial makes US$35.3bn acquisition

Capital One is set to become the sixth-largest US bank after the merger

Major American financial makes US$35.3bn acquisition

Capital One Financial Corp is set to significantly expand its market presence by acquiring Discover Financial Services in a landmark US$35.3bn all-stock transaction.

This strategic move, initially reported by Bloomberg News and later detailed by The Wall Street Journal, represents one of the largest financial sector mergers since Bank of America's acquisition of Merrill Lynch in 2009.

In terms of assets, Discover ranked as the 27th largest US bank with nearly US$150bn, while Capital One was the ninth largest with US$476bn, according to December Federal Reserve data. Their merger would create the sixth-largest US bank.

Under the agreement, Discover shareholders will receive 1.0192 Capital One shares for each Discover share. This arrangement offers a 26 percent premium based on Discover's closing price of $110.49 on the Friday before the announcement.

The deal values Discover at about US$35.3bn and is expected to close between late 2024 and early 2025. Following the merger, Capital One shareholders will own 60 percent of the combined company, with Discover shareholders owning the remaining 40 percent.

This merger is set to expand Capital One's credit card offerings and its deposit base significantly. Capital One, which already operates within the Visa and Mastercard networks, plans to retain the Discover brand, known for its substantial deposit gathering ability and debit card network services.

The acquisition follows Capital One's purchase of the digital concierge service Velocity Black in June 2023, further enhancing its position in the premium credit card and luxury market platform.

David Schiff, West Monroe's head of consumer retail and banking, noted, “Discover has done a better job of bringing in a lot of deposits and [has] access to a lot of institutions to run the debit card network and provide service. So, it gives them a lot of deposit gathering ability, which particularly in the current market is enormously important.”

The announcement of this deal comes amid a period of increasing pressure for Discover, including regulatory scrutiny and a transition in leadership, with Michael Rhodes announced as CEO in December 2023.

The merger, like all major bank consolidations, is expected to face rigorous examination under the Biden administration, which has been focusing on enhancing competition across the economy, including a 2021 executive order targeting bank deals.