Capital One Expected to Acquire Discover in Massive Deal
Justin Loto
Staff Writter
Capital One (COF) is expected to acquire Discover (DFS) for 35.3 billion dollars in an all-stock acquisition. If the acquisition goes through, the merger will form the sixth-biggest US bank by assets and credit cards, Reutor.com reports. Discover credit cards are offered in 200 nations; however, their network is small compared to big rivals, like Chase and American Express.
“This acquisition adds scale and investment, enabling the Discover network to be more competitive with the largest payments networks,” the companies announced in a joint statement. This purchase gives CapitalOne access to Discover’s payment network. Payment networks allow money to move from one place to another. Along with Visa and Mastercard, Discover is one of the three major networks in the United States of America.
The acquisition is expected to be approved in 2024 or early 2025, Capital One reports. However, the deal is expected to be met with anti-trust scrutiny, following the Biden Administration’s emphasis on establishing a more competitive financial services market. In 2021, Biden announced an executive order aimed at The Department of Justice and the Attorney General, urging them to review their bank merger policies. “The time is indeed ripe for us to re-examine how we assess bank mergers under the statutory framework that Congress has enacted” Assistant Attorney General Jonathan Kanter stated in response to Biden’s order. With both the president and the Justice Department seemingly in agreement over anti-trust regulation, it is crucial that both companies be able to provide substantial proof of a fair market for this merger to be completed.
Democratic Senator Elizabeth Warren has also called for the deal to be stopped. “The merger of CapitalOne and Discover threaten our financial stability, reduces competition, and would increases fees and credit costs for American families,” Warren posted on social media.
However, some experts argue that this acquisition will go through. The combined bank would still own less than 20% of the market, Investopedia reports. This provides a substantial counterargument for CapitalOne and Discover, and could pose a challenge for regulators looking to intervene.
If the deal is approved, Discover stockholders will reap great benefits. “The deal represents an immediate 27% return for Discover shareholders,” credit card expert Aaron Hurd said. All Discover investors will receive stock of CapitalOne valued at $140. Before the deal was announced, Discover was valued at $110. As of Monday, February 21st, Discover is valued at $123.
Capital One’s stock also rose in response to the deal. Before the transaction was announced, it was valued at $130.49. After the deal was reported, the stock rose to a high of $138.
Looking to the future, much uncertainty remains regarding how this acquisition will impact both investors and customers of Capital One and Discover. All stakeholders should keep an eye out for news regarding any regulation intervention as the merger progresses.
Contact Justin at justin.lotito@student.shu.edu