Virginia-based Capital One Financial Corp. is considering the acquisition of credit-card lender, Discover Financial Services, marking what might potentially be one of the most significant deals globally this year. People familiar with the matter have asserted that Capital One is seeking professional advice and engaged in discussions with Discover regarding the proposition. As of now, Discover’s shares have seen a 2% drop this year which has brought the company’s valuation to $27.6 billion. In contrast, Capital One boasts a market capitalization of about $52.2 billion. Read Full Article Here
If both companies reach a consensus, a subsequent announcement might be made this week. Both entities, known widely in consumer finance, would form the largest credit card company in the U.S. An amalgamation could witness the surpassing of rivals like JPMorgan Chase & Co. and Citigroup Inc. in loan volume according to data assessed by Bloomberg Intelligence.
However, an element of uncertainty encircles the entire process. With discussions ongoing, there is no guarantee that they will result in a final transaction. When approached for comments, representatives from both companies remained unavailable during the public holiday.
The potential acquisition of Discover could top the list of considerable transactions globally this year. A notable mention goes to the high-profile Synopsys Inc.’s $34 billion acquisition of software developer Ansys Inc., announced back in January, which presently stands as the largest deal.
-
Capital One is well recognized for its commercials featuring celebrities like Jennifer Garner and Samuel L. Jackson asking, “What’s in your wallet?”. The company, under the leadership of 73-year-old CEO Richard Fairbank, has traditionally focused on subprime consumers who carry a balance on their credit cards month-to-month.
-
In recent times, Capital One has been targeting more premium customers that are high spenders and tend to be loyal. As part of this strategy, it decided to acquire the digital concierge service, Velocity Black, last year, intensifying competition with American Express Co. and JPMorgan in the luxury market.
-
On the other hand, Discover has always focused on prime customers with better credit ratings. Unlike its competitors, Discover has rarely offered flashy sign-on bonuses and lavish perks.
This pursuit of a deal by Capital One comes on the heels of major dips in Discover shares in the latter half of the previous year. Share price faltered after the company warned of some compliance failures which ultimately led to the resignation of then-CEO Roger Hochschild. Since then, Discover witnessed a 62% drop in fourth-quarter profit as troubles continue to linger. Furthermore, Discover has stalled buybacks last year and is currently seeking a buyer for its student loan business. In a recent move, Toronto-Dominion Bank’s Michael Rhodes has been appointed as Discover’s new CEO, scheduled to take over by early March.