Capital One is purchasing Discover Financial Services in a $35.3 billion agreement

Capital One announced it will acquire Discover Financial Services for $35.3 billion in an all-stock deal that will give the bank an edge in the competitive credit card market.

Under the terms of the deal announced Monday night, Discover (DFS) shareholders will receive just over one Capital One (COF) share for every Discover share they own. This represents a nearly 27% premium to Discover’s Friday closing price of $110.49.

Upon completion of the transaction, Capital One’s current shareholder will own his 60% interest in the combined company, and Discover’s shareholders will own his remaining 40%.

Capital One expects the transaction to close in late 2024 or early 2025.

With a market valuation of approximately $28 billion, Discover is significantly smaller than the other three major U.S. credit card networks: Visa (V), Mastercard (MA), and American Express (AXP) . A credit card network is a connection between a card issuer and a merchant, and the card issuer sets the fees.

By bringing Discover, which also issues its own credit cards, under the same umbrella as Capital One, the bank will be able to compete with JPMorgan Chase (JPM), Bank of America (BAC), and Citigroup (C). This will give you a huge lead over rival credit card banks. ), does not process transactions itself.

Capital One founder and CEO Richard Fairbank said in an announcement Monday that the partnership will “build a payments network that can compete with the largest payments networks and payments companies.” said.

If the Capital One-Discover merger is approved by regulators, Capital One would also have a new source of revenue collected from merchant fees.

Capital One currently issues Mastercard, Visa, and Discover credit cards. The partnership is likely to result in more cards switching to the Discover network, The Wall Street Journal reported on Monday, before the partnership was officially announced.

The companies will host a joint conference call on Tuesday at 8 a.m. Eastern Time.