WSJ-Credit Cards: Capital One is buying Discover -- (edited)
Posted by
budice
Feb 19 '24, 10:27
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2/19/24, 10:28 AM Capital One Is Buying Discover Financial - WSJ
Capital One Is Buying Discover
Financial Deal would combine two ofthe largest credit-card companies in the U.S.
By AnnaMaria Andriotis Follow and Lauren Thomas Follow
Updated Feb. 19, 2024 1:17 pm ET
Discover Financial Services has a market value of nearly $28 billion. Capital One is buying Discover Financial Services in a deal that would marry two of the largest credit-card companies in the U.S. The all-stock deal could be announced Tuesday, according to people familiar with the matter. Discover has a market value of $28 billion, and the takeover
would be expected to value it at a premium to that.
Buying Discover will give Capital One, a credit-card lender with a market value of a little over $52 billion, a network that would vastly increase its power in the payments ecosystem.
Card networks are critical to enabling transactions and setting fees that merchants pay when consumers shop with credit cards. Though much smaller
than Visa and Mastercard, Discover is one of the few competitors to those companies in the U.S. and it is one of a small number of card issuers that also has
a payments network.
Capital One, the ninth-largest bank in the country and a major credit-card issuer, uses Visa and Mastercard for most of its cards. The bank plans to switch at least some of its cards to the Discover network, while continuing to use Visa andMastercard on others. Those larger networks have more merchant acceptance abroad than Discover does.
Capital One also plans to maintain the Discover brand on the cards and network. The deal follows a tumultuous period for Discover that has included increased regulatory scrutiny and a change in leadership.
In December, Discover said financial-industry executive Michael Rhodes would become its CEO and president. Discover has been approached by large banks and technology companies about an acquisition of all or a part of its business over the past decade or more. Tech companies have been interested in acquiring its network so that they can play a more central role in payments, but prior senior executives at Discover weren’t interested in separating the company’s credit-card lending side from the network.
For Capital One, the deal would also further expand the number of cardholders it will count as customers for its credit-card lending business. Many Discover
cardholders have high credit scores. Discover also has consumer deposits, most of which are in savings accounts, allowing Capital One to continue to grow its already large presence in that area.
An acquisition of Discover will rank among the biggest deals so far in 2024. After a lull in M&A activity in 2023, deal volumes have gotten off to a relatively strong start and are up 90% in the U.S. compared with a year earlier, according to Dealogic. Other big transactions include software maker Synopsys’ roughly $35 billion acquisition of rival Ansys and Diamondback Energy’s $25 billion deal for
Endeavor Energy.
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