Capital One, one of the largest credit card companies in the United States, has announced its plans to acquire Discover Financial Services in a monumental $35.3 billion merger. This acquisition is set to have significant impacts on the community and the employees of Discover, which is based in the north suburban area of Riverwoods, Illinois.
Under the terms of the all-stock transaction, shareholders of Discover Financial will receive Capital One shares valued at nearly $140 per share. This represents a substantial premium compared to the closing price of Discover shares on Friday, which stood at $110.49. The merger brings together two major credit card companies that are not banks, making it a noteworthy event in the industry.
While JPMorgan Chase, Citigroup, and American Express dominate the premium credit card market, Capital One and Discover cater to a similar customer base. Both companies primarily serve Americans who seek cash back rewards or modest travel benefits. This merger will allow Capital One to tap into Discover’s extensive network of 305 million cardholders and its payment processing capabilities.
From an external perspective, it may seem like business as usual at Discover’s headquarters in the north suburbs. However, executives from Capital One recently joined Discover CEO Michael Rhodes for a conference call to officially acknowledge the framework of this massive acquisition. Matt Schulz, the chief credit analyst for LendingTree, emphasized the significance of this merger, stating, “Among American businesses, these are big players. And anytime you have these companies of this size come together, it’s a significant thing.”
The impact of this merger on Discover’s more than 5,000 employees in the Chicago area remains uncertain. During the investor call, Rhodes expressed gratitude to Discover employees for their hard work and assured them of Capital One’s commitment to the Chicagoland region. However, there is expected to be some overlap between the two companies, raising questions about potential job redundancies and reorganization.
Capital One executives have indicated that they plan to retain Discover’s branding due to its loyal customer base and high consumer satisfaction. For cardholders of both companies, there will be no immediate changes until the deal is finalized, which could occur later this year. Any modifications to the terms of their cards must be communicated 45 days in advance, ensuring transparency and giving customers ample time to adjust.
The acquisition of Discover Financial Services by Capital One marks a significant milestone in the credit card industry. With Capital One’s extensive customer base and Discover’s payment network, this merger has the potential to reshape the landscape of credit card services in the United States. As the deal progresses, it will be interesting to see how the two companies integrate and navigate the challenges that come with such a massive consolidation.