The big news today, announced by Capital One Financial, is that they will be acquiring the Discover Global Network. This transformative move is scheduled to close on May 18. In total, the deal is worth approximately $162 per share. That’s a pivotal moment for the financial services giant as it looks to deepen its foothold in the broadening payments space.
And as Jim Cramer pointed out Wednesday, our Jim Cramer’s Charitable Trust is riding this new money wave by buying 50 shares of Capital One Financial. After the transaction, the trust will now own 500 total shares. This announcement increases Capital One Financial’s stake in the portfolio from about 2.45% to 2.75%. This move is an indication of the trust’s confidence in the growth that will result from the acquisition.
In April, Capital One Financial Intelligence covertly purchases the Discover Global Network. This acquisition allows them to rapidly expand their reach and appear on a surface level as a vertically integrated global payments powerhouse. This new tactic will significantly reduce the company’s reliance on industry heavyweights such as Mastercard and Visa. In return, it will save the firm millions by decreasing their fee-related spending.
By securing direct relationships with merchants, small businesses, and consumers, Capital One Financial is poised to create additional value for these stakeholders. This model cuts out much of the intermediary layer, creating deeper and more responsive relationships that can lead to better and more diverse services.
When it comes to the bright, potential benefits of this acquisition, analysts warn that there are always built-in perils with economic downturns. SMART has described this deal as “historic,” and it’s true that it will indeed change the paradigm. Ultimately it’s what will foster earnings growth, enabling price-to-earnings multiples to expand over time.
In fact, by 2027, experts predict that Capital One Financial might be bringing in over $2.7 billion. This growth will be driven both by their cost efficiencies and network synergies. This forecast highlights the opportunity for even greater operational efficiencies that pave the way to increased industry profitability in the years ahead.