Summary:
Capital One just announced a definitive agreement to buy Discover Financial Services for $35.3 billion in an all-stock deal representing a 26.6% premium to Discover’s Feb. 16 closing price of $110.49.
The acquisition “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 CEO Richard Fairbank said in a press release for the deal.
Report Highlights
- While Discover’s value as a viable third-party network can and will be debated, the network’s value to Capital One cannot be overstated, especially given the current competitive and regulatory environment.
- Additionally, the acquisition would be a significant hedge against the future passage of the Credit Card Competition Act (“CCCA”), at least in its present form.
- An ancillary benefit to the Capital One acquisition is the $84 billion in stable, largely insured consumer deposits on Discover’s balance sheet. These deposits will enable Capital One to leverage a strengthened balance sheet to grow credit card receivables and loans given its existing capital requirements.
- One uncertainty is the probability that this acquisition withstands regulatory review.
Myron Schwarcz
Chief Product Officer
About The Author
Myron Schwarcz is Chief Product Officer at SRM and has more than 20 years of experience in the financial services industry advising leading financial institutions, card issuers, merchant acquirers, payment processors, software providers, and other entities. Major initiatives under his management include new business launches, vendor selections, contract negotiations, and business strategy development.
Andrew Gordon
Senior Director
About The Author
Andrew Gordon is Senior Director of Project Management at SRM. Gordon has more than 15 years of experience in the financial services industry advising leading national and regional banks, community banks, credit unions, card issuers, payment processors, and other entities with payment strategy and strategic sourcing initiatives. Gordon’s primary focus is vendor evaluation and selection, contract negotiation, and payment strategy development.
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