- Capital One acquiring Discover
- Creates largest US credit card company
- Concerns raised over antitrust
Capital One has declared its intention to acquire Discover Financial Services for $35.3 billion, thereby merging two of the largest credit card issuers and lenders in the United States.
Richard Fairbank, founder and chief executive officer of Capital One, described the transaction as an “extraordinary opportunity to unite two exceptional companies.”
Fairbank said in a video statement published on the company’s website on Monday, “This deal accelerates our long-standing journey to work directly with merchants, to leverage our customer base, our technology, and our data to drive more sales for the merchants and great deals for consumers and small businesses.”
According to Discover CEO Michael Rhodes, the acquisition “maximises shareholder value” and “unites two strong brands with an enhanced capacity to accelerate growth.”
Rhodes said in a statement, “We anticipate a prosperous future as an integral part of the Capital One family and are committed to offering extra opportunities for our devoted clientele.”
With assets exceeding $470 billion, Capital One, the twelfth-largest bank in the United States, would become the largest credit card company in the country in terms of loan volume.
Discover, the smallest among the four major credit card companies headquartered in the United States, possesses an extensive network comprising approximately 305 million cardholders. This figure is nearly three times the current client base of Capital One.
Credit Card Balances Reach Trillion
The New York Federal Reserve estimates that by the fourth quarter of 2023, American card balances will have reached a record $1.13 trillion, making credit cards a lucrative industry for issuers in the United States.
Discover shareholders would receive slightly more than one share of Capital One for each Discover share they hold under the terms of the proposed acquisition, representing a 27 percent premium over Discover’s closing price on Friday.
The shareholders of Capital One, including Warren Buffett’s Berkshire Hathaway, would hold sixty percent of the merged corporation, while the remaining portion would be owned by the shareholders of Discover.
Advocates for consumer rights met the announcement of the deal with opposition.
The National Community Reinvestment Coalition’s chief executive officer, Jesse Van Tol, stated that regulators, including the Federal Trade Commission and Consumer Financial Protection Bureau, would likely be concerned about the acquisition.
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“Could retailers object as well?” Van Tol wrote on X, “I cannot think of a bank merger that encountered more opposition than Capital One’s acquisition of Discover.”
The administration of US President Joe Biden has prioritised stricter antitrust enforcement, arguing that “capitalism without competition isn’t capitalism.
The Antitrust Division of the United States Department of Justice announced last year its intention to improve its review process for bank mergers in light of technological advancements in the financial services sector.
