Perfectly timed, Capital One Financial Corporation got the green light from regulators. They announce their intention to purchase Discover Financial Services in a landmark $35.3 billion all-stock transaction. On the other end of that spectrum, on Friday, both the Federal Reserve and Office of the Comptroller of the Currency released some good news. That’s a backdrop for next week’s merger, which is slated to close May 18.
The purchase was initially announced back in February 2024. More than that, it signals a paradigm shift in the competitive landscape of the U.S. credit card industry. In fact, Capital One and Discover each are among the top-10 largest credit card issuers in the country. This merger will enhance Capital One’s already handsome deposit base and strengthen its burgeoning credit card business.
Capital One shareholders will only own 60% of the new combined company. At the same time, Discover shareholders will own 40%. The exchange routine equals to 1.0192 Capital One shares for each Discover share. This ratio translates into a 26% premium over Discover’s closing price of $110.49 on the day the announcement was made.
In announcing its approval of the merger, the Federal Reserve provided an extensive account of the rationale for this merger.
“The Board evaluated the application under the statutory factors it is required to consider, including the financial and managerial resources of the companies, the convenience and needs of the communities to be served by the combined organization, and the competitive and financial stability impacts of the proposal,” – The Fed.
As for the merger, it’s an enormous dollar value merger. At the same time, it points to the shifting power dynamics in the financial services space. Per the terms of the purchase, Capital One is acquiring Discover Bank indirectly through this transaction. This geographical shift will increase its market presence and improve customer offerings.
Approval would mark a major turning point for both companies. They are now fully prepared to face the myriad challenges and exploit the myriad opportunities that accompany the merger at such a large scale. As regulatory scrutiny continues to shape industry consolidations, this deal may set precedents for future transactions within the financial market.