Capital One to acquire Discover Financial

Capital One, a Warren Buffett-backed consumer bank and credit card issuer, announced Monday that it will acquire the credit card lender Discover Financial Services.

Capital One announced that the deal will create a "global payments platform at scale, with 70 million merchant acceptance points in more than 200 countries and territories." The all-stock transaction will be at a premium of 26.6% based on Discover's closing price of $110.49 on Feb. 16, with Discover shareholders set to receive 1.0192 Capital One shares for each Discover share owned. 

Discover has a market value of roughly $28 billion and the Journal reported that an acquisition would be expected to value it at a premium beyond that valuation. Capital One's market value is a little more than $52 billion, and a merger will be a significant expansion of its clout in the financial services sector. Capital One said the deal will leverage the benefits of its 11-year technology transformation over a larger enterprise and generate $2.7 billion in pre-tax synergies in 2027.

"From Capital One's founding days, we set out to build a payments and banking company powered by modern technology," said Richard Fairbank, the founder, chairman and CEO of Capital One. "Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies."

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"The transaction with Capital One brings together two strong brands with enhanced ability to accelerate growth and maximizes value for our shareholders, enabling them to participate in the tremendous upside of the combined company," said Michael Rhodes, CEO and president of Discover. "This agreement underscores the strength fo our business and is a testament to a bright future as part of the Capital One family and to providing expanded opportunities for our loyal customers."

Capital One said the transaction is expected to close in late 2024 or early 2025, subject to the satisfaction of customary closing conditions such as regulatory approvals and approval by each company's shareholders. The company and Discover plan to hold a live investor presentation call on Tuesday morning at 8:00 a.m. ET.

Capital One, which is a major credit card issuer and is also the ninth-largest bank in the U.S., primarily uses Visa and Mastercard but plans to offer some of its cards through the Discover network, according to a report by the Wall Street Journal, which added that the Discover brand will be maintained on its cards and network.

Ticker	Security	Last	Change	Change %
COF	CAPITAL ONE FINANCIAL CORP.	187.52	-4.49	-2.34%
DFS	DISCOVER FINANCIAL SERVICES	180.11	-2.32	-1.27%

Discover has previously been approached by banks and financial technology companies about selling all or part of its business – with tech companies interested in its payments network, although Discover balked at the prospect of splitting its credit card business from the network, per the Journal.

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In late 2023, Discover said it was exploring the potential sale of its student loan business and said it would stop new student loan applications in February. 

Last July, Discover disclosed a regulatory review over some incorrectly classified credit card accounts from mid-2007.

The company said in October that it agreed to improve its consumer compliance and related corporate governance as part of a consent order with the Federal Deposit Insurance Corporation (FDIC).

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Markets are closed in observance of President's Day. Last week before the prospective merger was announced, Discover's stock rose by more than 1% while Capital One's share price increased by over 1.3%.

This is a developing story. Please check back for updates.

Reuters contributed to this report.