Despite growing opposition from across the political spectrum, Capital One is pressing forward with its $35.3 billion acquisition of Discover Financial Services. The all stock deal would have the 4th largest credit card company acquire the 6th largest, creating a behemoth trailing only Chase and American Express.
Capital One is the 9th largest U.S. bank with $468.78 billion assets under management and 100 million customers. During the first half of 2023, the bank handled $272.6 billion in purchase volume while Discover clocked in with $105.8 billion. Combining the two would place the company’s credit card volume behind American Express, which handled $547.6 billion in purchases during the same period; however, “[f]rom a credit card lending standpoint, post-acquisition, Capital One would be the largest card lender, jumping ahead of JPMorgan Chase and Citi,” according to Fintech Business Weekly.
“From Capital One’s founding days, we set out to build a payments and banking company powered by modern technology,” according to the companies’ joint press release. “Our acquisition of Discover is a singular opportunity to bring together two very successful companies with complementary capabilities and franchises, and to build a payments network that can compete with the largest payments networks and payments companies.”
Leaders in Congress were quick to question whether the deal would lead to more competition in the industry or less. Senator Elizabeth Warren on the left and Senator Josh Hawley on the right have joined in a rare display of agreement to demand that the regulators block the merger. Senator Warren’s letter warns, “The potential merger, which would combine two of the largest credit card issuers in the United States, would consolidate the credit card market, create the nation’s sixth largest bank, and limit customer choice.” Similarly, Senator Hawley laments, “This is destructive corporate consolidation at its starkest. If consummated, this merger will create a new juggernaut in the credit card market, with unprecedented powers to extort American consumers. That cannot be allowed to happen.”
The Biden Administration has set its sights on quashing a number of mergers over the past 3 years: from airlines to grocers to big tech. This past December, the DOJ and the Federal Trade Commission (FTC) ratcheted up the pressure on companies, finalizing new merger guidelines that reduce the threshold for presumed illegality of horizontal mergers. The agencies stated their intention “to prevent those mergers that would entrench or extend a dominant position through exclusionary conduct, weakening competitive constraints, or otherwise harming the competitive process.”
According to DealPulse’s M&A database, which harnesses both AI and attorneys to digest the granular deal points of publicly-announced transactions, Capital One is advised by law firm Wachtell, Lipton, Rosen & Katz and financial adviser Centerview Partners LLC. Discover is advised by Sullivan & Cromwell LLP and financial advisers PJT Partners LP and Morgan Stanley & Co. LLC.
