Capital One to buy Discover in $35.3B deal

UPDATED 8:35 P.M. Feb. 19

McLean-based Capital One Financial is buying Discover Financial Services for $35.3 billion in an all-stock deal that marks Capital One’s largest ever acquisition, the two credit card giants announced Monday evening.

Under the terms of the acquisition agreement, Discover shareholders will receive 1.0192 Capital One shares for each share of Discover, representing a premium of 26.6% based on a Feb. 16 closing price of $110.49 for Discover shares.

The transaction is expected to close in late 2024 or early 2025, according to a news release. At close, Capital One shareholders will own about 60% of the combined company, and Discover shareholders will hold the remaining approximately 40%. Upon closing, three Discover board members will join Capital One’s board.

“From Capital One’s founding days, we set out to build a payments and banking company powered by modern technology. Our acquisition of Discover 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,” said Capital One Chairman, CEO and founder Richard Fairbank in a statement. “Through this combination, we’re creating a company that is exceptionally well-positioned to create significant value for consumers, small businesses, merchants and shareholders as technology continues to transform the payments and banking marketplace.”

“The transaction with Capital One brings together two strong brands with enhanced ability to accelerate growth and maximizes value for our shareholders, enabling them to participate in the tremendous upside of the combined company,” said Discover President and CEO Michael Rhodes in a statement. “This agreement underscores the strength of our business and is a testament to the hard work of Discover employees. We look forward to a bright future as part of the Capital One family and to providing expanded opportunities for our loyal customers.”

Ahead of the official announcement, news of the deal had been reported earlier Monday by Bloomberg and The Wall Street Journal. Illinois-based Discover has a market value of about $27.6 billion. Capital One has a market capitalization of about $52.2 billion. It reported $34.25 billion in 2022 revenue.

In August 2023, Roger Hochschild stepped down as Discover’s CEO and from its board, following the company’s July 2023 disclosure of a regulatory review of misclassified credit card accounts and pause of share buybacks. John Owen, a member of the board of directors, served as interim CEO until Discover appointed Rhodes as its CEO and a board member in December 2023.

In November 2023, Discover announced it was exploring the sale of its Discover Student Loans portfolio and would stop accepting new loan applications on Feb. 1, 2024.

The credit card network and issuer, which was No. 273 on the 2023 Fortune 500, had a revenue of $15.2 billion for fiscal 2022, according to Fortune, putting it below American Express — almost $55.63 billion, according to Fortune — as well as Visa ($29 billion) and Mastercard ($22 billion).

Discover reported a net income of $4.39 billion in 2022 and reported a net income of $388 million for the fourth quarter of 2023, down from the $1.025 billion it reported in the fourth quarter of 2022.

Capital One ranked No. 106 on Fortune magazine’s 2023 Fortune 1000 list and No. 386 on its 2023 Global 500 list.