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Capital One Acquires Discover in Landmark $35 Billion Deal to Become Top US Credit Card Giant

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Ticker Tea
February 20, 2024

📝 SUMMARY: In an ambitious move, Capital One Financial Corp. ($COF), headquartered in McLean, Virginia, has reached a definitive agreement to acquire Discover Financial Services ($DFS) for $35 billion in an all-stock deal. This strategic acquisition is poised to catapult Capital One to the forefront of the U.S. credit card market, surpassing industry behemoths like JPMorgan Chase & Co. ($JPM) and Citigroup Inc. ($C) in terms of loan volume. Under the terms of the agreement, Capital One will exchange 1.0192 of its shares for each share of Discover, offering a 26.6% premium based on Discover's closing price on February 16.

The transaction, slated for completion in late 2024 or early 2025, underscores a significant consolidation in the consumer finance sector, combining two of the industry's most recognized brands. This merger is expected to create a dominant player with a diversified customer base, blending Capital One's historical focus on subprime consumers with Discover's prime customer segment. The combined entity is projected to hold about 60% ownership by Capital One shareholders and 40% by Discover shareholders, with anticipated pre-tax synergies amounting to $2.7 billion.

This acquisition marks a pivotal moment for Capital One, especially following a period of strategic shifts aimed at attracting more premium, high-spending customers, a segment traditionally dominated by competitors like American Express Co. ($AXP) and JPMorgan. For Discover, the deal follows a challenging phase marked by a significant profit decline, compliance issues, and leadership changes, highlighting a strategic exit amidst turbulent times.

As the biggest acquisition globally in the current year, this deal not only signifies a major strategic realignment for Capital One and Discover but also sets a new competitive landscape in the U.S. credit card industry, promising enhanced scale, efficiency, and market leadership in the years to come.

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