Visi Money
TLDR:
Key Points:
- Capital One (COF) to acquire Discover Financial (DFS) in an all-stock deal valued at $35.3 billion.
- The acquisition brings together two companies with strong financial results, customer experiences, and innovation.
In a significant move in the financial sector, Capital One Financial Corporation (COF) has announced its plans to acquire Discover Financial Services (DFS) in an all-stock transaction valued at $35.3 billion. The deal, which represents a premium of 26.6% based on Discover’s closing price, brings together two companies known for their attractive financial results, award-winning customer experiences, breakthrough innovation, and commitment to financial inclusion.
One of the key strategic rationales behind the acquisition is the opportunity to build a globally competitive payments network. Discover’s global payments network, with 70 million merchant acceptance points in over 200 countries, will be complemented by Capital One’s technology and resources, making it more competitive with the largest payments networks globally.
Additionally, the combination of the two companies’ credit card businesses is expected to create a stronger position in the credit card marketplace, offering industry-leading products and experiences for consumers, small businesses, and merchants. The acquisition will also enhance Capital One’s “Digital First” national banking capabilities, leveraging Discover’s fast-growing national direct savings bank.
From a financial perspective, the deal is expected to generate significant synergies and deliver attractive accretion and returns for shareholders. Expense synergies of $1.5 billion in 2027 are anticipated, along with network synergies of $1.2 billion, driven by adding Capital One’s debit and credit card purchase volume to the Discover network. The transaction is expected to be more than 15% accretive to adjusted non-GAAP EPS in 2027, with a return on invested capital of 16% and an internal rate of return exceeding 20%.
The acquisition is subject to customary closing conditions, including regulatory approvals and shareholder approval, with a target timeline of late 2024 or early 2025 for completion. Upon closing, three Discover Board members will join the Capital One Board of Directors. Both companies have a strong commitment to their communities and have been recognized as great places to work, adding to the positive impact of the merger.
