Capital One recently confirmed its intent to purchase Discover Financial for $35.3 billion. Regulators will still need to approve the megamerger before the sale can proceed. If that approval happens, Capital One would become the nation’s largest credit card issuer, with $250 billion in card balances.
Megamerger details
According to media reports, the all-stock acquisition of Discover Financial would provide a $30 per share premium for Discover shareholders. The proposed plan would see them receive Capital One shares with a value of roughly $140 per share. Discover shares were valued at about $110 per share at the end of Friday’s market trading.
If the deal obtains regulatory approval, Capital One, thanks to Discover’s digital banking operations. The company also expects the megamerger to enable it to cut expenses by $1.5 billion over the next three years.
Notably, the deal’s largest benefit for Capital One is likely to be access to Discover’s payment network. There are currently four primary credit card networks—Mastercard, Visa, American Express, and Discover. Ownership of that network would provide Capital One with fee revenue from merchant transactions using that network.
Regulatory concerns may present obstacles to the deal
Still, some observers have already expressed doubts about the deal and its ability to gain approval. Some skeptics have cited anti-trust concerns about Capital One gaining control of Discover’s card network. Others have pointed to the fact that the merger would create an entity with some $600 billion in assets.
Regulators will largely focus on how the megamerger might impact consumers. Notably, that decision comes as American consumer debt has been on the rise. Three years of rising prices has reduced consumers’ savings and forced many to turn to credit card debt to stay afloat. For its part, Capital One has said that it plans to invest in outreach to consumers to increase their acceptance of Discover.
