Capital One to Acquire Discover

Narrow-moat Capital One Financial has agreed to acquire Discover Financial Services in an all-stock deal worth $35 billion. The acquisition is expected to close by late 2024 to early 2025. In general, we are neutral on the deal as we do see strategic value to it, particularly as it relates to Discover’s network. Additionally, we believe Capital One is paying a fair price, with the implied transaction price of $139.86 per share at the time of the announcement being nearly equal to our $141 fair value estimate for Discover. That said, there will be meaningful integration risk and some uncertainty around regulatory approval, as the combined company would be the largest credit card issuer in the U.S. by loan volume. Therefore, we do not expect our fair value estimate to change as a result of the transaction.