US bank and credit card issuer Capital One announced yesterday evening that it plans to buy rival card firm Discover Financial Services in a deal valued at $35.3bn.
The transaction would create the sixth largest bank in the US, creating a new player in the payments market.
Discover has a payments network with 70m acceptance points across more than 200 countries, but it is still the smallest of the four US payments networks.
By adding scale to the firm, Capital One said the deal will enable Discover to be more competitive with the largest payments companies like Visa and Mastercard.
Under the terms of the agreement, Discover shareholders will receive 1.0192 Capital One shares for each Discover share, a premium of 26.6 per cent. Capital One shareholders will own around 60 per cent of the combined entity.
“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,” said Richard Fairbank, founder, chairman and chief executive officer of Capital One said.
The deal is expected to create synergies worth $2.7bn, including by cutting operating expenses and making network savings. In 2027, the transaction is expected to deliver return on invested capital of 16 per cent.
The transaction will close in late 2024 or early 2025, provided it gets the green light from both regulators and shareholders. The deal will likely receive close attention from regulators given President Biden’s aims to encourage competition.