Capital One, a US consumer bank backed by Warren Buffett, has revealed its plan to acquire US credit card issuer Discover Financial Services in an all-stock deal valued at $35.3 billion to build a global payments giant. 

Warren Buffett-Backed Capital One Set to Acquire Discover Financial Services

According to Reuters, the merger could result in the formation of the sixth-largest US bank by assets and the largest US credit card company by loan volume that would compete with rivals JPMorgan Chase and Citigroup.

Discover, which has a network extending across 200 countries and territories, is still smaller than Mastercard, Visa, and American Express rivals.

In a joint statement released Monday, the two companies said: "The transaction brings together two companies with long-standing track records of delivering attractive and resilient financial results, award-winning customer experiences, breakthrough innovation, and financial inclusion."

Under the terms of the deal, Discover shareholders will receive 1.0192 Capital One shares for each Discover share. Capital One shareholders will own 60% of the combined company upon completion, while Discover shareholders will own the rest.

The companies anticipate achieving $2.7 billion in pre-tax synergies in 2027, which would consist of cost-cutting and network savings. However, the composition of the new board, which will include three members appointed by Discover, is yet to be determined.

"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," Michael Rhodes, CEO and President of Discover, said in the statement.

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Capital One-Discover Financial Services Deal Still Needs to be Approved by Regulators

According to Capital One, the deal is expected to be approved by regulators in late 2024 or early 2025. However, a merger expert said the deal could receive heightened regulatory scrutiny as it comes to a time when the Biden administration focuses on increasing competition in all areas of the economy, including bank mergers, based on a 2021 executive order.

"It will be the first big test of bank merger regulation since the Biden administration's executive order on promoting competition in 2021," Jeremy Kress, a University of Michigan professor of business law who previously worked on bank merger oversight at the Federal Reserve, told Reuters.

Warren Buffett-led firm Berkshire Hathaway is the seventh-largest shareholder of Capital One, with a 3.28% stake. Capital One, valued at $52.2 billion, was the fourth largest player in the US credit card market by volume in 2022, while Discover was the sixth, Reuters reported.

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