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Capital One weighs acquisition of Discover Financial

Pedestrians walk by a Capital One ATM in New York on Jan. 13. Capital One’s move to acquire Discover Financial Services is expected to close in late 2024 or early 2025.  (JOHN TAGGART)
By Liana Baker </p><p>and Matthew Monks Bloomberg News

Capital One Financial Corp. is exploring a potential acquisition of credit-card lender Discover Financial Services that would rank as one of the largest deals globally so far this year, people with knowledge of the matter said.

McLean, Virginia-based Capital One is working with advisers and has been holding talks with Discover about a deal, the people said. Shares of Discover have fallen about 2% this year, valuing the Riverwoods, Illinois-based company at $27.6 billion, while Capital One has a market capitalization of about $52.2 billion.

If Capital One is able to reach an agreement, an announcement may come as soon as this week, the people said. The deal would bring together two storied consumer-finance brands and create the largest US credit-card company by loan volume, surpassing longtime rivals JPMorgan Chase & Co. and Citigroup Inc., according to data compiled by Bloomberg Intelligence.

Deliberations are ongoing and there’s no certainty they will lead to a transaction, the people said, asking not to be identified because the information is private. Representatives for Capital One and Discover didn’t immediately respond to requests for comment during a public holiday.

A purchase of Discover could rank as one of the biggest acquisitions globally this year, Bloomberg-compiled data show. The top deal so far has been Synopsys Inc.’s roughly $34 billion acquisition of software developer Ansys Inc. announced in January.

Prime customers

Capital One is known for its commercials featuring celebrities like Jennifer Garner and Samuel L. Jackson asking, “What’s in your wallet?” The company, led by 73-year-old Chief Executive Officer Richard Fairbank, has historically catered to subprime consumers who carry a balance on their cards each month.

In recent years, Capital One has been trying to attract more premium customers that tend to be heavy-spending and more loyal. It agreed to buy the digital concierge service Velocity Black last year, pushing deeper into luxury markets dominated by American Express Co. and JPMorgan.

Discover has long focused on prime customers with better credit ratings, though it has historically shied away from the flashy sign-on bonuses and lavish perks used by many of its rivals.

Capital One is pursuing a deal following major declines in Discover shares in the second half of last year, which came after the company warned it had discovered some compliance lapses. The issue ultimately led to the resignation of then-CEO Roger Hochschild.

Discover said in January that its fourth-quarter profit dropped 62% as it continued to grapple with the fallout. The company halted buybacks last year and has been seeking a buyer for its student-loan business. In December, Discover appointed Toronto-Dominion Bank’s Michael Rhodes as its new CEO, lining him up to take over by early March.