Capital One Takes Aim at Payments Giants with $35.3 Billion Discover Acquisition

Capital One

In a move expected to shake up the payments landscape, Warren Buffett-backed Capital One announced a $35.3 billion all-stock acquisition of fellow U.S. credit card issuer Discover Financial Services. This strategic merger paves the way for the creation of a global payments powerhouse, poised to challenge industry giants like JPMorgan Chase and Citigroup.

The deal, subject to regulatory approval, would position the combined entity as the sixth-largest U.S. bank by assets and solidify its dominance in the U.S. credit card market. This synergy promises to enhance scale and investment, creating a more compelling competitor against established networks like Visa, Mastercard, and American Express. 

For Discover shareholders, the acquisition offers a 26.6% premium over their Friday closing price, with each share exchanged for 1.0192 Capital One shares. Under the agreement, Capital One shareholders will hold a 60% stake in the new company, while Discover shareholders will own the remaining 40%. 

Richard Fairbank, Capital One’s founder, chairman, and CEO, hailed the acquisition as a “singular opportunity” to combine “two highly successful companies” and build a payments network capable of “competing with the largest players.” He further emphasized the deal’s potential to unlock significant value for various stakeholders, including consumers, businesses, merchants, and investors in the face of rapid technological advancements in the financial sector. 

Echoing Fairbank’s optimism, Discover CEO Michael Rhodes highlighted the benefits of merging “two strong brands,” expecting expanded opportunities for both shareholders and customers. The transaction is slated to close by late 2024 or early 2025, contingent upon regulatory approvals and shareholder votes. 

This strategic move by Capital One signifies a bold step towards reshaping the payments landscape. With increased scale, enhanced investment power, and a combined network spanning 200 countries, the newly formed entity will undoubtedly be a force to be reckoned with in the global payments arena.