On February 19th, 2024, Capital One Financial Corporation and Discover Financial Services announced an agreement under which Capital One will acquire Discover in an all-stock transaction. The estimated value of the deal is $35.3 billion and would combine two of the largest credit card providers in the United States.

Details Of The Discover Acquisition By Capital One

Under the terms of the agreement, 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. “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. The combined entity would create the sixth-largest United States bank by assets, with Capital One shareholders owning 60% and Discover shareholders 40%.

The “new Capital One” would be able to achieve $2.7 billion in annual pre-tax savings from synergies as well as gain significant scale:

• The 3rd Largest In Credit Card Purchase Volume
• The 2nd Largest Credit Card Issuer In The United States
• The Largest In Credit Card Balances Outstanding

While the deal is expected to close towards the end of 2024 or early 2025, there are still significant hurdles from consumer advocates and some lawmakers.

Credit. Fox Business. Capital One Acquires Discover.

Capital One Gains Access To The Discover Payment Network

“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,” said Richard Fairbank, founder, Chairman and Chief Executive Officer of Capital One. “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.”

Currently, transactions on Capital One credit cards are processed over either a Visa or Mastercard payment network. Discover, however, similar to American Express, operates its own payment network. This makes Discover both the issuer of the credit card and the credit card payment processor. The prevailing assumption is for Capital One to change a portion of the existing credit cards to Discover, but still retain Visa and Mastercard for the remainder.

Credit. The Balance. Payment Via Credit Card Terminal.

The Differences Between Capital One And Discover Customers

Capital One and Discover are proven credit card issues with complementary strategies and customers as well as a shared focus on the customer experience. Both companies offer a variety of credit cards, with Capital One focusing on rewards credit cards and Discover on cash-back credit cards. Historically, Capital One catered to subprime customers who carry a monthly credit card balance, while Discover focused on prime customers with better credit ratings. In addition, Discover has shied award from flashy sign-on bonuses and lavish perks.

Final Thoughts

The Discover acquisition is a bold, but extremely interesting, move by Capital One. Over the last few years, Capital One heavily focused on the travel rewards niche with the introduction of the Capital One Venture X Rewards Credit Card, Capital One Venture X Business, and the growing network of Capital One airport lounges. Given this focus, the acquisition of Discover appears out of place, as Discover shies away from the credit card rewards focused customer. However, this acquisition is about one thing: the Discover payment network. The goal of Capital One is to combine the best of American Express (payment network), Chase (credit card issuance), and Capital One and Discover (customer service) into a single, unstoppable force in the credit card space.