March 05, 2024 | Financials | North America | Active
On 19-Feb-24, Capital One Financial, the US consumer bank backed by Warren Buffett’s Berkshire Hathaway, confirmed a definitive merger agreement to acquire Discover Financial Services, a smaller rival and credit card issuer. The acquisition aims to create a global payments giant. Terms of the agreement call for Capital One to offer 1.0192 of its shares for each Discover share, valuing Discover at $35.3bn, and the all-share consideration represents a 26.6% takeover premium. Upon closing, Discover shareholders will hold 40% of the combined entity, with Capital One shareholders owning the 60% majority. The merger agreement allows Discover to pay regular quarterly dividends up to $0.70 per share, while Capital One is entitled to pay up to $0.60 per share. Completion is contingent on approvals from both sets of shareholders, as well as regulatory approvals from the Federal Reserve, the Office of the Comptroller of the Currency (OCC), Financial Industry Regulatory Authority (FINRA) and state banking authorities. The merger agreement contains customary clauses including reasonable best efforts that requires both companies to “defend and appeal any action or proceeding by a governmental entity (other than a bank regulatory agency)”. In our view, this is a potential risk since if Fed or OCC rejects the merger, the companies would not be obligated to appeal. The “requisite regulatory approvals” definition covers “all regulatory authorisations, consents, orders and approvals (i) from the Federal Reserve Board and the OCC.” A burdensome condition restricts the companies from offering any remedy “that would reasonably be expected to have a material adverse effect on the surviving entity and its subsidiaries, taken as a whole, after giving effect to the mergers.” The termination fee and RTF are set at $1.4bn each. On timing, Capital One’s CEO, Richard Fairbank, said on the M&A call that regulatory filings are expected ...
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