Credit Card News
Capital One Plans to Acquire Discover Financial for $35.3 Billion
Following rumors and reports yesterday, Capital One has now officially announced plans to acquire Discover.
About the acquisition:
Capital One intends to purchase Discover Financial for approximately $35.3 billion. The all-stock transactions will see Discover shareholders recieving 1.0192 shares of Capital One for each Discover share, which marks a 26% premium based on Discover’s recent closing price. This purchase of Discover includes the company’s payment network as well as its credit cards and banking services.
As a press release detailing the transaction notes, both Capital One and Discover have created flagship credit card products. In the case of Discover, that’s the Discover It card, which offers 1% back on all transactions as well as 5% back on purchases that fall into special rotating quarterly bonus categories. The card also has a unique welcome bonus where the company matches the cashback cardholders have earned through the end of their first year. Meanwhile, Capital One’s key cards include their Venture card (and the newer Venture X card) as well as the Savor/SavorOne card, Quicksilver card, and more.
What they’re saying:
In a statement, Capital One chairman and CEO Richard Fairbank said, “From Capital One’s founding days, we set out to build a payments and banking company powered by modern technology. Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies.” He continued,”Through this combination, we’re creating a company that is exceptionally well-positioned to create significant value for consumers, small businesses, merchants, and shareholders as technology continues to transform the payments and banking marketplace.”
Additionally, Discover’s CEO and president Michael Rhodes said of the deal, “The transaction with Capital One brings together two strong brands with enhanced ability to accelerate growth and maximizes value for our shareholders, enabling them to participate in the tremendous upside of the combined company,” adding, “We look forward to a bright future as part of the Capital One family and to providing expanded opportunities for our loyal customers.”
My thoughts:
Given the size of the two companies involved, it seems extremely likely that this transaction will be met with both public and regulatory scrutiny. But, assuming that it does proceed, I’m fascinated to see what this means for both banks. Presumably, Capital One would want to phase out its Mastercard and Visa offerings in favor of using the Discover network, which could mean a shakeup for cardholders. For example, while acceptance is near parity in the United States, Discover’s overseas acceptance is lacking. Thus, some Capital One customers with the banks’ travel cards may be disappointed with the switch. That is, of course, unless the network can grow into those international markets under Capital One’s control.
With numerous questions to be answered, this is definitely a story I’ll be keeping a close eye on going forward.
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