Capital One, a major US consumer finance company backed by Warren Buffett, will acquire credit card issuer Discover Financial Services on February 19 in an all-stock deal valued at $35.3 billion, Reuters reports. The plan was announced.
The merger, which will bring together two of the largest U.S. credit card companies, is a move that Capital One Chairman and CEO Richard Fairbank said will bring together “the largest payment networks and The aim is to establish a payment network that can compete with other companies.
This integration brings Capital One alongside other major U.S.-based payment networks, including Visa, Mastercard, and American Express.
Transaction details
Discover shareholders will receive 1.0192 Capital One shares for each Discover share, representing a 26.6% premium to Discover's Friday closing price.
After completion, Capital One shareholders will own 60% of the combined company's stock, and Discover shareholders will own approximately 40%, according to an official statement.
As of 2022, Capital One will be worth $52.2 billion and ranks fourth in the U.S. credit card market by sales value, Nilsson said. Discover occupies his sixth place in the market.
Regulatory landscape and democratic pressures
Capital One said the acquisition is expected to receive regulatory approval in late 2024 or early 2025.
The deal is expected to be subject to intense scrutiny, especially as President Joe Biden's administration continues to work on increasing competition across a variety of sectors, including banking, the report added. The administration's focus on banking transactions was emphasized in the 2021 Executive Order.
Jeremy Kress, a business law professor at the University of Michigan and former merger oversight expert at the Federal Reserve, told Reuters he expected significant backlash and increased regulatory scrutiny of the deal.
Progressive Democrats have historically opposed bank consolidation, arguing that it increases systemic risk and harms consumers by restricting lending. Recent pressure on regulators to take a tougher stance on such transactions comes after deals aimed at bailing out failed lenders, such as JPMorgan's acquisition of First Republic Bank.
Discover Capital One assets
Discover ranked 27th among U.S. banks with nearly $150 billion in assets, while Capital One held ninth place with $476 billion in assets, according to December Federal Reserve data. Once the merger is complete, the combined company will be the sixth-largest bank in the United States, Federal Reserve data shows.
Although the two companies share some credit card business areas, Discover is one of the major credit card processors in the United States. The agreement comes at the same time as increased regulation of credit card fees, which is subject to new rules proposed by the Consumer Financial Protection Bureau (CFPB).
CFPB Concerns and Discover Regulatory Challenges
The CFPB, led by merger skeptic Rohit Chopra, expresses concerns about competition in the U.S. credit card market, citing a report highlighting lower interest rates offered by small banks and credit unions in the first half of 2023. did.
Discover faces regulatory challenges, reveals investigation into misclassified credit card accounts from mid-2007, and strengthens consumer compliance as part of October consent order with Federal Deposit Insurance Corporation agreed.
Both Discover and Capital One reported declines in fourth-quarter profits, with Discover down 62% and Capital One down 43%.
Regulatory challenges, including supervisory issues, are typically an impediment to deals between financial companies, but regulators are more receptive when the issue is on the target company's side and the acquiring company has a good regulatory track record. That's possible, legal experts told Reuters.
(Information provided by Reuters)
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