Shares in Capital One (NYSE: COF) plunged in pre-market trading on Tuesday after announcing a $35.3 billion all-stock acquisition of smaller rival Discover Financial Services (NYSE: DFS).
Capital One Financial Corporation (COF) has announced its acquisition of Discover Financial Services (DFS) in a landmark $35 billion, all-stock transaction. This merger aims to establish the largest U.S. credit card company in terms of loan volume. The combined entity expects to strengthen its competitive position against Wall Street giants.
The all-stock deal stipulates that Discover shareholders will receive 1.0192 Capital One shares for each Discover share, translating to a 26.6% premium to Discover’s closing price of $110.49 on Friday. The U.S. financial markets were closed on Monday due to the Presidents’ Day holiday.
Upon finalization of the transaction, Capital One shareholders will possess around 60% of the merged entity, with the remaining ownership lying with Discover shareholders. The banking services giant anticipates the merger to yield expense and network synergies of $1.5 billion and $1.2 billion, respectively, by 2027.
The merger will expand Capital One’s payment ecosystem reach by capitalizing on Discover’s extensive network of 70 million merchant acceptance points spanning over 200 countries. This strategic move will fortify the company’s standing in the burgeoning credit card sector, which is witnessing a surge due to the accelerated digital payments boom post-pandemic, driven by a rise in e-commerce transactions.
The announcement of this acquisition comes amid a period of turbulence for Discover, marked by the departure of former CEO Roger Hochschild in August of last year following a regulatory review of misclassified credit accounts. In December, the company announced Michael Rhodes as its new CEO and recently disclosed a 62% decline in fourth-quarter profits.
Capital One (NYSE: COF) Stock Movement
COF stock soared 44.56% in the pre-market trading session Monday after closing at $137.23 on Friday. The traders had exchanged hands with 1,626,132 (1.62 million) shares compared to the average daily trading volume of 2.51 million.
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