Capital One is buying Discover for $35 billion in biggest deal so far this year

Under the terms of the deal announced late Monday, Discover (DFS) shareholders will receive a little over one share of Capital One (COF) for every Discover share they own. That represents an almost 27% premium from Discover’s closing share price of $110.49 on Friday.

If the deal is finalized, current Capital One shareholders will own a 60% stake in the combined company, while Discover shareholders will own the remaining 40%.

Capital One said it believes the deal will close in late 2024 or early 2025.

With a market valuation of almost $28 billion, Discover is considerably smaller than the other three major credit card networks in the US — Visa (V), Mastercard (MA) and American Express (AXP). Credit card networks are the liaison between card issuers and merchants, for whom they set fees.

Getting Discover, which also issues its own credit cards, under the same roof as Capital One would give the bank a major leg up against competing credit card-issuing banks such as JPMorgan Chase (JPM), Bank of America (BAC) and Citigroup (C), which don’t process transactions themselves.

Richard Fairbank, founder and CEO of Capital One, said in the Monday announcement that the deal would “build a payments network that can compete with the largest payments networks and payments companies.”

A marriage between Capital One and Discover, if approved by regulators, would also give Capital One a new source of revenue from the merchant fees it collects.

Currently, Capital One issues credit cards with Mastercard and Visa. The deal would likely result in more of its cards getting switched to the Discover network, the Wall Street Journal reported earlier on Monday before the deal was officially announced.

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