Capital One has entered into an agreement to buy rival Discover Financial for $35.3 billion in a 100% stock-based deal, according to the company. press release Posted Monday night.
Discover shareholders will receive 1.0192 shares of Capital One for each share of Discover stock, representing a 26.6 percent premium based on Discover's closing price of $110.49 last Friday.
The merger of two of America's largest credit card companies creates a global payment platform with 70 million payment points in more than 200 countries.
“We are creating a company that is exceptionally well positioned to create significant value for consumers, small businesses and shareholders, as technology continues to transform the payments and banking market,” says Capital One Founder and CEO Richard Fairbank in a commentary.
Buying competitors: Capital One, here outside its New York headquarters. Image: NTP
See synergies
The deal is one of the largest in the US banking sector since the financial crisis in 2008. Capital One and Discover are the largest credit card issuers behind JPMorgan and Citigroup. Financial Times He notes that Discover also provides a payment network, making the company a competitor to Visa and MasterCard.
The newspaper continues to say that the consolidation of the highly fragmented sector has been expected for a long time, but adds that many of the major players have faced difficulties in integrating and achieving synergies. The combination is expected to generate $1.5 billion in cost synergies and a 16 percent return on invested capital by 2027, Capital One and Discover said Monday.
Buffett retreated
The Capital One/Discover deal comes at the same time that US regulators plan to overhaul regulations on bank mergers and, according to the Financial Times, are likely to be carefully reviewed – due to both parties' large credit card businesses.
Capital One Bank, the twelfth largest bank in terms of assets in the United States, was under pressure after the collapse of the Silicon Valley bank in March last year. The stock has since rebounded, a rally triggered in part by Warren Buffett's Berkshire Hathaway acquiring a 2.6 percent stake in the company for nearly $1 billion two months later.
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