The big are getting bigger. CapitalOne (credit and debit card issuer) and Discover (card issuer and acquirer) are both large financial services concerns that own and operate their own banks. On February 19th, CapitalOne (COF) announced their intended acquisition of Discover Financial (DFS) for a 27% premium, or about $35 billion in an all-stock purchase. A high-level analysis shows the capture of significant revenue and cost synergies, the latter of which could amount to a whopping $2.7 billion in 2027 from streamlining duplicative transaction processing and operational expenses. Management’s guidance suggests 15% earnings accretion in that same year. Investors may recall that DFS operates the fourth largest branded closed loop card issuing network in the U.S., which opens the door to COF to move their debit and credit transactions to DFS’ rails. A decision on regulatory approval is expected late 2024 or early 2025, and is sure to attract the full attention of the DOJ and FTC.
Wayne Johnson III, Executive Advisor, Wellesley Hills Financial, Managing Member, Payment Chain Consulting
