Capital One buys Discover Financial to create credit card giant companies

Capital One announced this Monday the purchase of Discover Financial Services, a credit card financial institution, for $35.3 billion (about 32.8 billion euros), which will be paid entirely in shares. The combination of the two entities will create the largest U.S. card firm by loan volume. Capital One has taken advantage of the bad moment that Discover is experiencing in the stock market after governance problems and a decline in profits last year. The combination of the two entities, which would create the sixth US bank by assets, will be subject to investigation by competition authorities.

Discover has built a global payments network with 70 million merchant acceptance points in more than 200 countries and territories. Still, it is the smallest of the four global payment networks based in the United States, far behind Visa and MasterCard and far behind American Express. However, it is one of the few issuing entities that also has its own payments platform.

“This is a fundamental step in Capital One’s goal of building a global payments firm. “This will accelerate the entity’s long journey of working directly with merchants and leveraging its customer base, technology and data ecosystem to drive more sales for merchants and great deals for consumers and small businesses,” the entity said in a statement. Will take advantage of.” Capital One is now a customer of Visa and MasterCard, whose acceptance is more widespread, but it will begin issuing some of its cards with Discover.

Capital One will pay 1.0192 treasury shares for each Discover share, representing a 26.6% premium over last Friday’s closing price, the entity said in a statement. If authorized, operations are expected to close in late 2024 or early 2025.

The deal brings together two major consumer finance brands, a combination that would overtake former rivals JPMorgan Chase and Citigroup in credit card loan volume in the United States, according to data compiled by Bloomberg Intelligence.

Discover, based in Riverwoods, Illinois, is the 27th-largest bank in the United States by assets, with about $150 billion, according to December data from the Federal Reserve. Capital One, based in McLean, Virginia, is in ninth place with assets of $476 billion. The combined entity will be the sixth-largest bank in the United States, according to supervisory data.

Capital One indicated in its statement that the union of the two companies “positions the combined entity to compete with the largest payments institutions and deliver greater value to its franchise of more than 100 million customers.”

According to the statement, Capital One shareholders will own approximately 60% of the merged entity and Discover shareholders will own the other 40%. Following the closing, three members of Discover’s board of directors will join the Capital One board. The acquisition will generate pre-tax synergy of $2.7 billion, of which $1.5 billion will be expense savings.

Discover is a digital entity, so there will be no physical bank branches with the acquisition. The Sears department store chain introduced the Discover Card in 1985. The unit became part of Morgan Stanley before the bank took it public as an independent entity in 2007.

The purchase of Discover is the largest global acquisition this year, according to data compiled by Bloomberg. The most significant transaction to date is Synopsys’ acquisition of software developer Ansys for approximately $34 billion, which was announced in January.

“From Capital One’s founding days, we planned to build a banking and payments entity powered by modern technology. Our acquisition of Discover is a unique opportunity to bring together two highly successful companies with complementary capabilities and franchises and create a payments network that can compete with the largest payments networks and firms,” said Richard Fairbank, Founder, Chairman and CEO of Discover. The director said. Capital through a representative, a statement. He said, “Through this combination, we are creating an entity that is exceptionally well positioned to create significant value for consumers, small businesses, merchants and shareholders as technology continues to transform the banking and payments market.” Is.”

Michael Rhodes, CEO and Chairman of Discover, said, “The transaction with Capital One brings together two strong brands with greater ability to accelerate growth and maximize value for our shareholders, giving them the tremendous upside of the combined firm. Allowed to participate in the journey.” “This agreement underlines the strength of our business and is testament to the hard work of Discover employees. “We look forward to a bright future as part of the Capital One family and providing more opportunities to our loyal customers,” he said.

Centerview Partners served as financial advisor and Wachtel, Lipton, Rosen & Katz served as legal advisor to Capital One. PJT Partners and Morgan Stanley acted as financial advisors and Sullivan & Cromwell acted as legal advisor to Discover.

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