A new multi-billion dollar takeover is looming: US credit card specialist Discover Financial Services wants to acquire rival Discover Financial Solutions in a stock swap worth $35.3 billion.

The deal has a gigantic dimension. After all, two of the largest credit card companies in the US are joining forces. The goal is clear: After the merger, the powerhouse wants to compete with Visa and Mastercard.

Discover Financial Services – well-known credit card company from the US Discover Financial Services is a US-based financial services provider. The company offers direct banking and payment services and is considered one of the most well-known brands in the US.

The company operates a network of over one million merchants that accept credit card payments and receives fees for each transaction. The Discover network includes millions of nationwide terminals from PULSE, one of the leading ATM operators in the country, as well as Diners Club International. While the core business is within the US, Diners Club International also operates businesses outside the country.

In the past fiscal year, the financial conglomerate recorded a net profit of $2.94 billion on revenues of $17.84 billion.

Takeover as an asset deal Now, Capital One wants to swallow up rival Discover Financial. As part of the transaction, each Discover Financial shareholder will receive 1.0192 Capital One shares, representing a premium of almost 27% over Discover’s closing price on February 16, 2024.

In total, Capital One is paying $35.3 billion for the smaller rival. By comparison, Capital One’s market value was $52.23 billion. Annual revenues were $36 billion and the company recorded a net profit of $4.88 billion.

Deal creates new heavyweight Capital One expects the transaction to generate pre-tax synergies of $2.7 billion and increase adjusted earnings per share by more than 15% in 2027. Alone, $1.2 billion is expected to be achieved by switching from Visa and Mastercard to Discover.

The fact is, Capital One and Discover Financial are two of the largest credit card providers – behind JP Morgan Chase and Citigroup. Discover also has its own payment network, making it a smaller competitor to industry leaders Visa and Mastercard.

Undoubtedly, the deal creates a new giant in the credit card market: After all, the acquisition creates a combined credit card business with 70 million acceptance points in more than 200 countries and territories, well-positioned to compete with the largest payment companies and serve more than 100 million customers.

Competition for established credit card giants? This could lead to a shift in power. With the takeover, Capital One gains access to Discover’s payment network. As a result, some of its cards could be shifted from the Visa and Mastercard networks to the Discover network, according to some analysts. Capital One is the third-largest issuer of Visa and Mastercard credit cards, representing about 10% of US credit volume.

Approval from authorities could be a stumbling block The biggest hurdle the merger faces is likely to be approval from US regulatory authorities. Recently, many companies have hesitated with acquisitions as US competition authorities have taken a tough stance against potential monopolies. The deal would be remarkable nonetheless. If the transaction actually goes through, it would be, according to the news service Bloomberg, the largest merger of the year.