Capital One Financial (NYSE:COF) said on late-Monday that it will acquire credit card company Discover Financial Services (NYSE:DFS) in an all-stock, $35 billion deal, marking one of this year's largest deals and Capital One's largest deal in its history.
Capital One will give Discovery shareholders 1.0192 shares for each share in Discover, representing a per-share value of $139.86, based on the firm's Friday close. The deal represents a premium of about 26.6% to Discover's Friday closing price, and values the credit card firm at $34.97 billion.
Capital One said in a press release that it had entered a definitive agreement with Discover for the deal, confirming recent reports that the two were considered a merger. The news comes with the U.S. stock market closed Monday for President's Day.
The deal is expected to generate $2.7 billion in pre-tax synergies and be more than 15% accretive to Capital One's non-GAAP EPS by 2027.
After the closing of the deal, Capital One shareholders will hold 60% and Discovery shareholders will own about 40% of the combined entity.
"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 founder, Chairman and CEO Richard Fairbank said.
In January, Discover announced that net income in its fourth quarter dropped 62% and shares are down 2% year-to-date. The company's provision for credit losses rose by $1.0 billion compared to the previous year, reaching $1.9 billion. This increase was fueled by a $305 million higher reserve build in the current quarter and a $717 million uptick in net charge-offs.