Capital One Financial Corp. intends to… Buying Discover Financial Services in an all-stock deal, which one analyst noted would “effectively create the largest card issuer in the U.S.”
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The deal was announced late Monday after various outlets reported that a deal was close. Discover DFS,
Shareholders will receive 1.0192 shares of Capital One stock for each share of Discover stock, representing a premium of more than 26% to Discover's Friday closing of $110.49.
The companies said the deal was worth just over $35 billion.
“Our acquisition of Discover is a unique opportunity to combine two highly successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies,” Capital One CEO Richard Fairbank said in a statement. launch.
This release calls out Discover's “rare and valuable global payments network,” noting that it is still the smallest of the four U.S.-based networks. “This acquisition adds scale and investment, enabling the Discover network to be more competitive,” the companies said.
Piper Sandler's Kevin Parker wrote in a note to clients late Monday that the combined deal would make the combined company the largest card issuer as measured by outstanding card loans, which he said was $257 billion. JPMorgan Chase & Co. JPM,
He said he had $211 billion.
“From our perspective, this transaction can create significant value for both shareholders as it significantly increases its size [Discover’s] Payments platform and effectively reduces the risk of a large reinvestment cycle [Discover] Cross integration on [Capital One] “The platform,” Parker continued.
At the same time, he noted that the deal would likely face “significant” regulatory scrutiny “given that we have not seen a bank consolidation of this size in several years, with the exception of forced mergers of failed banks.”
In light of this expected scrutiny and “somewhat long earnings,” expect Capital One shares to trade lower on Tuesday. Capital One said it expects the deal to yield more than 15% of adjusted earnings per share in 2027.
John Hecht, a Jefferies analyst, was more optimistic about the regulatory picture.
“The timing and nature of regulatory approval is always a difficult guess (particularly in an election year), but from a market share or asset class perspective, we do not see significant headwinds,” he wrote on Monday.
Mizuho's Dan Dolev highlighted that the combination of Capital One and Discover could pose some risks for Visa Inc. V,
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Capital One “may seek to target some card sizes towards it [Discover’s] He noted before the official announcement of the deal. Currently, Capital One is the third-largest issuer of Visa and Mastercard credit cards in the United States, accounting for roughly 10% of domestic credit volume, he said.
He also saw the potential for Capital One to look to leverage Discover's debit network as a way to gain more interchange, as he noted that most of Discover's debit transactions are exempt from the interchange caps set forth in the Durbin Amendment.
