Capital One to Acquire Discover for $35 Billion in Merger of Major US Credit Card Companies
Capital One Financial has announced plans to purchase Discover Financial Services in a landmark deal valued at $35 billion. The acquisition, which will be an all-stock transaction, is set to bring together two major credit card companies and potentially shake up the payments industry currently dominated by Visa and Mastercard.
As per the terms of the deal, Discover Financial shareholders will receive Capital One shares valued at nearly $140, a significant premium to the previous closing price of Discover shares. This acquisition is expected to create a major competitor in the credit card industry, challenging the dominance of Visa and Mastercard.
The move could potentially lead to the adoption of Discover’s payment network within Capital One or the creation of a new payment network altogether. Capital One is making this strategic move based on the continued increase in credit card usage and balances by Americans, although lenders have had to increase reserves due to the possibility of rising borrower defaults.
Furthermore, the acquisition would provide Capital One with access to Discover’s payment processing network, thereby enabling revenue from transaction fees. Discover, which has been under regulatory scrutiny, may have been influenced by this ongoing pressure to sell.
However, it remains uncertain if the deal will pass regulatory scrutiny, with consumer groups expected to push for consumer-friendly terms. Analysts have also raised concerns about potential anti-trust issues arising from the vertical integration of Capital One’s credit card lending with Discover’s credit card network.
Overall, the acquisition of Discover by Capital One is set to have far-reaching implications for the credit card industry, as well as for consumers and regulators alike.
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