Capital One To Acquire Discover for $35 billion
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Capital One, a top bank in the US, has acquired Discover Financial Services for $35 billion. It aims to establish the largest US credit card firm by loan volume, thereby increasing the capability of the combined entity to challenge Wall Street’s giants.
Shareholders of Discover Financial will receive shares in Capital One worth almost $140 each. This shows a significant premium over the current closing prices.
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Capital One Aims To Challenge Top Payment Networks In Financial Growth
Richard Fairbank, Capital One Chief Executive Officer stated that this development is a “singular opportunity” for two firms to come together and compete with top payment networks. He revealed to analysts in a conference call that the firm is “well-placed for approval.” The joined size of the firm may attract antitrust regulators’ scrutiny, as reported by the analysts.
The Firm Wants To Remove Mastercard Inc. And visa Inc. As Relying Bodies
Capital One has always relied on Mastercard Inc. or Visa Inc. to disburse its credit cards, according to historical records. By combining Discover Financial, the firm can remove those two middlemen and control the fees deducted when a customer uses the company’s card at checkout.
According to analysts, Mastercard will possibly feel the merger’s influence more than Visa. However, there is some doubt that Capital One’s deal will bring pivotal developments. Trevor Williams at Jefferies said that there may still be some little synergies concerning the joining and doubt that it will make Discover a tougher competitor.
Shares in Discover Financial increased by 12.6% in Tuesday’s trading. Following that, Capital One saw a little change in its value. The firm holders will now have about 60% of the joined company. The attainment will bring forth $2.7 billion in pretax synergies.
Capital One Seeks To Improve Services
Capital One is being recognized for its exceptional commercials starring celebrities like Samuel L. Jackson, Jennifer Garner, and Taylor Swift. The firm, headed by 73-year-old Chief Executive Officer, Fairbank, has continuously functioned for subprime consumers who retain card balances each month. It is the third-biggest firm that issues Mastercard and Visa credit cards in the US.
Recently, the bank has focused on its aim to bring in new premium customers who are loyal and spend heavily. Last year, it decided to purchase Velocity Black, a digital concierge service. This pushes the firm deeper into the luxury markets where firms like JPMorgan and American Express Co. dominate.
Discover Financial possesses three dissimilar payment networks including its Pulse debit network, Diners Club International, and the Discover Network. The firm has tried to increase the rate of acceptance and usage of what they offer. However, it has extensively lagged behind Mastercard and Visa.
