Capital One Financial
is planning to buy
Discover Financial Services
in a deal that would join two of the nation’s largest credit-card companies, The Wall Street Journal reported on Monday.
For Discover, an acquisition would cap off several tumultuous months touched off by a disappointing earnings report and then followed by a credit-card classification error and a leadership departure.
An all-stock deal could be announced as soon as Tuesday, the Journal reported, citing people familiar with the matter. The price would represent a premium to Discover’s current $28 billion market value, the sources said.
Capital One would maintain the Discover brand within a combined company—if regulators approve the deal, the people familiar with the matter said.
A deal would balloon Capital One’s payments network. Capital One currently uses
Visa
and
Mastercard,
which dominate the network industry; if the acquisition closes, Capital One could switch to Discover.
Capital One and Discover didn’t return requests for comment.
Discover stock took a hit in July after the company reported weaker-than-expected earnings. At the same time, Discover disclosed it had incorrectly classified certain credit-card accounts that boosted costs for some merchants, but not for cardholders. The classification error began around 2007.
And Discover received a proposed consent order from the Federal Deposit Insurance Corp. regarding consumer compliance, separate from the classification error. The shares fell again in August after the unexpected resignation of its chief executive officer.
Although the stock subsequently rebounded during the broader market’s 2023 rally, it remains roughly 10% below where it traded before the problems surfaced.
Capital One shares have been jumping from earnings strength, and is up more than 23% over the past 12 months.
Mergers and acquisitions fell in 2023 as higher interest rates increased the cost of capital, but so far 2024 volumes have rebounded, a trend that could keep going if interest rates fall.
Write to Teresa Rivas at [email protected]
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