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Capital one to get discovery

Capital One Financial Corporation announced its intention to acquire Discover Financial Services in an all-stock deal valued at approximately $35.3 billion. This strategic acquisition is set to create a payments platform with a scale of 70 million merchant acceptance points in more than 200 countries and regions, representing an important step towards building a globally competitive payments platform.

For small business owners, this development is especially noteworthy. The merger positions the combined entity to compete with larger payments companies, promising enhanced value and expanded opportunities for more than 100 million customers, including a large number of small businesses. Capital One’s acquisition of Discover not only expands operations, but is a strategic move to leverage the technological advancements and data ecosystems of both companies to increase sales to merchants while offering attractive deals for consumers and small businesses alike.

The terms of the agreement stipulate that Discover shareholders will receive 1.0192 shares of Capital One stock for every share of Discover stock they own, translating into a 26.6% premium based on Discover’s closing price as of February 16, 2024. This exchange ratio means that upon closing, Capital One shareholder will own approximately 60% of the combined company, while Discover shareholders will own the remaining 40%.

Richard Fairbank, Founder, Chairman and CEO of Capital One, highlighted the merger as a unique opportunity to unite two successful companies with complementary capabilities. Fairbank emphasized the ability to compete with the best payment networks and deliver significant value to all stakeholders as technology continues to revolutionize the payments and banking sectors.

Echoing this sentiment, Michael Rhodes, CEO and president of Discover, recognized the merger as a testament to Discover’s strong business model and the dedication of its employees. Rhodes expressed enthusiasm for the enhanced growth potential and shareholder value that the combined entity is poised to unleash.

Strategically, the combination aims to build a strong, globally competitive payments network, combining Discover’s broad merchant acceptance points with Capital One’s technology and customer-centric approach. The union is expected to increase sales to merchants and deliver greater deals to consumers and small businesses, thanks to the expanded reach and investment in the Discover network.

The deal also promises compelling financial results, with expectations of generating $2.7 billion in pre-tax synergies and accreting more than 15% non-GAAP adjusted EPS in 2027. Furthermore, the deal expects a return on invested capital (ROIC). ) reaches 16% in 2027, with an internal rate of return exceeding 20%.

Both companies have committed to maintaining a strong presence in the community, with Capital One continuing its significant community investment efforts, including a $200 million impact initiative. The merger is expected to strengthen Capital One’s balance sheet, featuring a CET1 ratio of approximately 14% at closing, with 84% of the company’s deposits secured as of year-end 2023.

Pending regulatory and shareholder approvals, the transaction is expected to close in late 2024 or early 2025. Upon completion, the board of directors of the combined entity will include three members from Discover, ensuring seamless integration and strategic continuity.

For small business owners, the merger between Capital One and Discover signals a future of improved payment solutions, greater access to innovative financial products, and a stronger, more competitive marketplace. While the combined company benefits from its technological prowess and broad customer base, the small business community will benefit from improved sales opportunities, more favorable transaction terms, and access to a broader range of financial services designed to meet their unique needs in an increasingly digital economy. .

Capital One has acquired Discover, creating a payments giant to drive value for small businesses and consumers globally.

Image: Discover, Capital One





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