Following this announcement, the acquisition is expected to receive antitrust scrutiny and it will develop a global payments bank by assets and a US-based credit card company that will meet the needs, preferences, and demands of its customers in the region.
The investment is also set to add scale and enable the Discover network to be more competitive with the larger payment networks. At the same time, Discover shareholders will receive 1.0192 Capital One shares for each of the Discover-owned shares, which will represent a 26.6% premium over the latter’s closing price.
The deal comes at a time when the US Democratic President’s administration is focused on optimising and accelerating the competition in all areas of the economy, including a 2021 executive order that was aimed at bank deals. The administration’s executive order was released in order to require bank regulators and the Justice Department to review their bank merger policies. It also mentioned that it will consider a broader range of factors in the process of assessing bank mergers for antitrust issues, while the Office of the Comptroller of the Currency proposed last month the scrapping of the fast-track review procedure.
In addition, the deal was announced during a time of increased regulatory focus on credit card fees. These new regulations are currently subject to strict rules that were proposed by the Consumer Financial Protection Bureau. The agency flagged competition concerns in the US credit card market, such as higher rates charged by the bigger credit card providers.
Both Capital One and Discover expect to achieve USD 2.7 billion in pre-tax synergies by 2027, funds which will include the cost-cutting and network savings processes that come with the acquisition. Furthermore, Capital One shareholders are expected to own 60% of the combined company, while Discover shareholders will own the rest of 40%.
According to Capital One officials, the acquisition is set to be approved by regulations in late 2024 or early 2025. The new board of the combined company will have three members appointed by Discover, although it was not made immediately clear how many directors the board would have in total. Other terms and conditions of the deal were not disclosed by any of the firms.
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