(Voice of Paul) – Capital One announced on Monday that it would acquire Discover Financial Services in an all-stock transaction valued at $35.3 billion, a deal that would merge two of the largest credit card companies in the United States.
“A space that is already dominated by a relatively small number of mega players is about to get a little smaller,” said Matt Schulz, chief credit analyst at LendingTree.
Capital One, with $479 billion in assets, is one of the nation’s largest banks, and it issues credit cards on networks run by Visa and Mastercard. Acquiring Discover will give it access to a credit card network of 305 million cardholders, adding to its base of more than 100 million customers. The country’s four major networks are American Express, Mastercard, Visa and Discover, which has far fewer cardholders than its competitors.
But consumer advocates pushed back on the possible deal, saying it posed antitrust concerns. “It is very difficult to imagine how federal regulators could allow Capital One to buy Discover given the requirement that mergers benefit the public as well as insiders,” Jesse Van Tol, the chief executive of the National Community Reinvestment Coalition, said in a statement.
The acquisition by Capital One will be one of the first tests of regulatory scrutiny on bank deals since the Office of the Comptroller of the Currency said last month that it intended to slow down approvals for mergers and acquisitions.
“It’s hard to know which way it would go, but there will certainly be a lot of attention paid to this deal because of the money and magnitude of the companies involved,” said Mr. Schulz.
Complicating the landscape is the fact that other deals in the financial industry have come under renewed scrutiny, said David Schiff, a senior partner at West Monroe, a digital services consulting firm. These include New York Community Bank’s acquisition of billions of assets from Signature Bank during the regional banking crisis last year.
New York Community Bank recently reported a sizable loss for its most recent quarter, and said it would set aside more capital to act as a buffer against future problems. Much of its troubles stem from the weakening commercial real estate market, but Mr. Schiff said that politicians could point to the deal as an example of one that regulators were too quick to approve.
As part of the acquisition, Capital One will pay Discover shareholders a 26 percent premium based on the company’s closing stock price on Friday. At the close of the deal, which is subject to regulatory approval and is expected in late 2024 or early 2025, Capital One shareholders will own approximately 60 percent of the combined company and Discover shareholders will own the rest.