The deal has been confirmed. Capital One Financial Corporation and Discover Financial Services announced that they have entered into a definitive agreement under which Capital One will buy Discover in an all-stock transaction valued at $35.3 billion.
The deal combines two companies with long-standing track records of delivering attractive and resilient financial results, award-winning customer experiences, breakthrough innovation, and financial inclusion.
Under the terms of the deal, Discover shareholders will receive 1.0192 Capital One shares for each Discover share, representing a premium of 26.6% based on Discover’s closing price of $110.49 on February 16, 2024. At the closing of the deal, Capital One shareholders will own approximately 60%, and Discover shareholders will own about 40% of the combined company.
Discover built a rare and valuable global payments network with 70 million merchant acceptance points in over 200 countries and territories. And even so, it is the smallest of the four US-based global payments networks. This deal adds scale and investment, enabling the Discover network to be more competitive with the largest payment networks and payment companies.
This is a key foundation in Capital One’s goal to build a global payments company. And it will accelerate the company’s long-standing journey to work directly with merchants to utilize its customer base, technology, and data ecosystem to drive more sales for the merchant and great deals for consumers and small businesses.
Capital One and Discover are proven credit card franchises with complementary strategies and a focus on the customer. And both companies developed compelling flagship products, award-winning customer experiences, and powerful brands. They have also both delivered attractive and resilient growth and returns through economic cycles.
The combined credit card business will be in an even stronger position to deliver industry-leading products and experiences that span the credit card marketplace across consumers, small businesses, and merchants.
Capital One customers can access an entirely digital and full-service banking experience or visit one of 259 branches, more than 80,000 fee-free ATMs, more than 16,000 cash deposit locations, and 55 iconic Capital One Cafes in 21 of the country’s 25 largest metro areas. And adding Discover’s fast-growing national direct savings bank will increase the combined company’s scale to compete with the nation’s largest banks, and the Discover Global Network brings a major opportunity to accelerate national banking growth.
The deal is expected to generate expense synergies of $1.5 billion in 2027 (26% of Discover operating expenses, plus 10% of Discover marketing expenses), driven by common business functions partially offset by targeted investments in the Discover network. And the deal is expected to generate network synergies of $1.2 billion in 2027, driven by adding Capital One debit purchase volume and selected credit card purchase volume to the Discover network.
This deal is expected to be over 15% accretive to adjusted non-GAAP EPS in 2027. And the deal is expected to deliver return on invested capital of 16% in 2027, with an internal rate of return in excess of 20%.
Capital One appreciates the importance of Chicagoland and remains committed to maintaining a strong presence in that market, and maintaining service excellence across the U.S.
The deal is expected to close in late 2024 or early 2025, subject to satisfaction of customary closing conditions, including regulatory approvals and approval by the shareholders of each company.
Upon the closing of the deal, three Discover Board members, to be named at a later date, will join the Capital One Board of Directors.
Centerview Partners LLC served as financial advisor and Wachtell, Lipton, Rosen & Katz served as legal advisor to Capital One. And PJT Partners and Morgan Stanley & Co. LLC served as financial advisor and Sullivan & Cromwell LLP served as legal advisor to Discover.
KEY QUOTES:
“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. 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.”
- Richard Fairbank, founder, Chairman and Chief Executive Officer of Capital One
“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. This agreement underscores the strength of our business and is a testament to the hard work of Discover employees. We look forward to a bright future as part of the Capital One family and to providing expanded opportunities for our loyal customers.”
- Michael Rhodes, CEO and President of Discover