Capital One Discover Merger Faces High Regulatory Hurdles, Walmart to Buy Vizio

Scott Peters
21 Feb, 2024
New York City

Capital One Financial decreased 3% to $133.0 after the company agreed to acquire Discover Financial in an all-stock deal for $35.3 billion. 

The deal was announced late Monday, and after the merger, Capital One shareholders would control 60% and Discover Financial shareholders would control 40% of the combined company. 

The deal would create the largest U.S. credit card issuer with an estimated $250 billion in card balances, but with the merger, Capital One will have access to a critical payment processing network. 

The merger of two companies is expected to find favor among lawmakers, as many in the U.S. Congress have labeled Visa and Mastercard, a duopoly dominating credit and debit card payment processing. 

The transaction is expected to deliver a return on invested capital of 16% in 2027, with an internal rate of return in excess of 20%, and the deal is expected to be more than 15% accretive to adjusted non-GAAP earnings per share in 2027, Capital One said in a note to investors. 

Despite the merger of two large credit card issuers, cost and network synergies are not likely to emerge for another three years. 

The transaction is expected to generate expense synergies of $1.5 billion in 2027, driven by 26% of Discover operating expenses, plus 10% of Discover marketing expenses, and by common business functions partially offset by targeted investments in the Discover network.

The acquisition is expected to generate network synergies of $1.2 billion in 2027, driven by adding Capital One debit purchase volume and selected credit card purchase volume to the Discover network.

The complex regulatory hurdles were not overlooked by the market, and Discover Financial added 12.2% to $124.42, far lower than the implied merger price of $140 a share. 

In a second deal announced this week, Walmart said it plans to acquire smart TV maker Vizio for $2.3 billion and boost its advertising business through the ad-free streaming content on its television sets. 

Vizio jumped 16% to $11.06 and extended its two-day gain to over 40% when the news of a possible deal emerged.