On Monday evening, Capital One Financial (NYSE: COF) revealed its intention to acquire Discover Financial Services (NYSE: DFS) in a significant all-stock transaction valued at $35 billion. This deal, marking one of the largest this year, also stands as Capital One's most substantial acquisition in its history.
As part of the agreement, Discovery shareholders will receive 1.0192 shares of Capital One for each Discover share, translating to a per-share value of $139.86 based on Capital One's closing price on Friday.
The acquisition presents a premium of approximately 26.6% over Discover's closing price on Friday, valuing the credit card company at $34.97 billion.
The definitive agreement between Capital One and Discover follows recent speculations about a potential merger, with the announcement coinciding with the closure of the U.S. stock market for President's Day.
Projections for the deal anticipate generating pre-tax synergies of $2.7 billion and foresee more than a 15% increase in Capital One's non-GAAP EPS by 2027.
Upon completion of the acquisition, Capital One shareholders will retain 60% ownership, while Discover shareholders will hold around 40% of the combined entity.
Richard Fairbank, Capital One's founder, Chairman, and CEO, expressed enthusiasm about the acquisition, stating, "Our acquisition of Discover is a unique opportunity to unite two highly successful companies with complementary capabilities and franchises, aiming to establish a competitive payments network on par with the industry's largest players."
In January, Discover reported a 62% decline in net income for its fourth quarter, and year-to-date shares were down by 2%. The company attributed the decrease to a $1.0 billion rise in provision for credit losses compared to the previous year, reaching $1.9 billion. This increase was driven by a $305 million higher reserve build in the current quarter and a $717 million uptick in net charge-offs.
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