Capital One To Acquire Discover Financial For $35.3 Billion

Capital One Financial Corp. (COF) has reached an agreement to acquire Discover Financial Services (DFS) in an all-stock transaction valued at $35.3 billion that would create a payments giant serving over 100 million customers.

"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," Capital One's founder and chief executive, Richard Fairbank, said in a press release late Monday.

According to the terms of the deal, Discover shareholders will receive 1.0192 Capital One shares for each Discover share, representing a 26.6% premium to Discover's closing share price on Friday. When the transaction closes, Capital One shareholders will own about 60% of the combined company, while Discover shareholders will own the remainder, the press release said.

Discover had a market capitalization of $27.6 billion at the close of trading on Friday, while Capital One's market value stood at $52.2 billion. U.S. financial markets were closed for the Presidents' Day holiday on Monday.

Capital One, which expects the deal to close in late 2024 or early next year pending shareholder and regulatory approval, said the combination of the two companies will generate $2.7 billion in pre-tax synergies and add at least 15% to adjusted earnings per share in 2027.

News of the deal had been reported earlier Monday by The Wall Street Journal , which said that Capital One was expected to maintain the Discover brand and would switch at least some of the cards it issues to the Discover network. Capital One mostly uses Visa (V) and Mastercard (MA) for the cards it issues.

"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 said in the press release. The company didn't reference whether the Discover brand would be maintained.

Capital One also said that the addition of Discover's banking arm "will increase the combined company's scale to compete with the nation's largest banks."

Discover has dealt with some turmoil over the past several months. Last month, the company reported weaker-than-expected quarterly earnings and warned about tougher conditions facing consumers, which had prompted the lender to set aside higher provisions for credit losses. Discover shares fell sharply on the earnings report but have recouped most of those losses over the past month.

In August, Discover announced that Roger Hochschild would step down from his role as chief executive officer, which followed the company's disclosure the previous month of incorrectly classified credit card accounts. The company also faced a separate probe by the Federal Deposit Insurance Corp., which was resolved in October when Discover reached a consent agreement with the FDIC under which the lender agreed to improve compliance and risk management.

Update: This article has been updated to include confirmation about the terms of the deal.