Capital One announced a $35 billion all-stock acquisition of Discover Financial, which would combine two of the largest standalone credit card companies in the US.
The deal was offered at a significant premium to Discover’s stock price and would create the number one credit card issuer.
Capitol One aims to build a payments network that can better compete against Visa and Mastercard’s duopoly by adding Discover’s existing payment platform.
However, analysts expressed concerns about antitrust scrutiny given the highly concentrated credit card market.
“This marketplace that’s dominated by the big players is going to shrink a little bit more now,” LendingTree chief credit card analyst Matt Schulz said.
“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,” Capital One chairman and CEO Richard Fairbank stated.
Both companies have also seen profits decline as more borrowers fall behind on payments amid high inflation and interest rates.
Consumer groups are expected to pressure regulators to ensure the merger benefits consumers.
“We are surprised that DFS would sell, but suppose that its regulatory challenges such as its recent October FDIC consent order and the card product misclassification issue may have opened the door for the board to consider strategic alternatives that it may not have in the past,” analysts Arren Cyganovich and Kaili Wang wrote.
“The deal also poses massive anti-trust concerns, given the vertical integration of Capital One’s credit card lending with Discover’s credit card network,” National Community Reinvestment Coalition president and CEO Jesse Van Tol said.
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