Pressures on major mergers and acquisitions could collapse blockbuster Capital One-Discover deal.
Mergers and acquisitions (M&A) are an integral part of investment banking infrastructure, but pressure on major moves could cost prospective business ventures at the highest level.
Capital One and Discover’s blockbuster banking deal is one such merger that faces intense pressure from advocacy groups to scrutinize the fine print.
The $35.3B deal would allow the banking giant Capital One to absorb one of the credit world’s best-known assets in Discover, after a turbulent 2023. However, 30 advocacy groups have spoken out and urged the Justice Department to step in to kick the tires.
A letter from the advocacy groups, postmarked March 21, starkly reads; “Dear Chair Powell, Acting Comptroller Hsu, and Assistant Attorney General Kanter:
We urge the Board of Governors of the Federal Reserve System (Federal Reserve), Office of the Comptroller of the Currency (OCC), and the Department of Justice to move quickly to commence a full and transparent review of the proposed Capital One Financial Corporation acquisition of Discover Financial Services that provides ample opportunity for the public to engage and comment on the proposed merger.”
Capital One keeps confidence
Capital One remains buoyant, expecting the deal to close by the end of 2024, but the letter’s thirty authors have asked for certain items to be adhered to publicly:
- The Federal Reserve and the OCC should prohibit streamlined application or expedited review for the proposed merger.
- The Federal Reserve and the OCC should extend the public comment period to at least sixty day.
- The Federal Reserve and the OCC should hold a public hearing on the proposed merger.
- The Federal Reserve and the OCC should disclose any pre-filing discussions with the merging parties.
- The Department of Justice should fully evaluate the proposed merger under the 2023 merger guideline.
- The Department of Justice should make the competitive factors report available to the public.
If the deal does go through then Capital One’s owner, McClean would be bigger than JPMorgan Chase and would snap up one of the biggest credit card distributors in the United States. Capital One would quadruple their number of existing customers after swallowing up the 305 million additional cardholders according to the New York Times.
Discover released a February statement about the acquisition, with new CEO and President of Discover, Michael Rhodes stating that the “transaction with Capital One brings together two strong brands with enhanced ability to accelerate growth and maximizes value for our shareholders, enabling them to participate in the tremendous upside of the combined company,”
“This agreement underscores the strength of our business and is a testament to the hard work of Discover employees. We look forward to a bright future as part of the Capital One family and to providing expanded opportunities for our loyal customers.”
It remains to be seen if the move will be stalled or sail through, but Captial One believes it will with its dedicated approach to the formal application process that was made to the Office of the Comptroller of the Currency on the same day as the letter from the advocacy groups reached the Federal Reserve Chair Powell, Acting Comptroller of the Currency Hsu and DOJ’s Antitrust Division Assistant Attorney General Kanter.
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