Pressures on major mergers and acquisitions could collapse the blockbuster Capital One-Discover deal.
Mergers and acquisitions (M&A) are an integral part of the investment banking infrastructure, but the pressure on major moves could cost potential business ventures dearly.
The blockbuster banking deal between Capital One and Discover is one such merger that faces intense pressure from advocacy groups to scrutinize the fine print.
The $35.3 billion deal would allow banking giant Capital One to absorb one of the credit world’s best-known assets into Discover, after a turbulent 2023. However, 30 advocacy groups have spoken out and urged the Department of Justice to intervene to kick the tires. .
A letter from the advocacy groups, postmarked March 21, starkly reads; “Dear Chairman Powell, Acting Comptroller Hsu, and Deputy Attorney General Kanter:
We urge the Board of Governors of the Federal Reserve System (Federal Reserve), the Office of the Comptroller of the Currency (OCC), and the Department of Justice to move quickly to initiate a full and transparent review of Discover’s proposed acquisition of Capital One Financial Corporation Financial Services offering ample opportunity for the public to engage and comment on the proposed merger.”
Capital One remains confident
Capital One remains optimistic, expecting the deal to be concluded by the end of 2024, but the thirty authors of the letter asked that some points be respected publicly:
- The Federal Reserve and OCC should prohibit a streamlined application or expedited review of the proposed merger.
- The Federal Reserve and OCC should extend the public comment period to at least sixty days.
- The Federal Reserve and OCC are expected to hold a public hearing on the proposed merger.
- The Federal Reserve and OCC are expected to make public any preliminary discussions with parties involved in the merger.
- The Department of Justice is expected to fully evaluate the proposed merger under the 2023 Merger Guidelines.
- The Department of Justice should make the Competitive Factors Report available to the public.
If the deal goes through, Capital One owner McClean would become bigger than JPMorgan Chase and buy one of the largest credit card distributors in the United States. According to the New York Times, Capital One would quadruple the number of existing customers after gobbling up 305 million additional cardholders.
Discover released a February statement on the acquisition, with Discover’s new CEO and President, Michael Rhodes, saying that “the transaction with Capital One brings together two strong brands with greater ability to accelerate growth and maximize value for our shareholders, allowing them to participate in the enormous benefit of the combined company,”
“This agreement highlights 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 bringing more opportunities to our loyal customers.”
Whether the move will be blocked or go through remains to be seen, but Captial One believes that will happen with its dedicated approach to the formal application process which was submitted to the Office of the Comptroller of the Currency on the same day as the groups’ letter defense reached Federal Reserve Chairman Powell, Acting Comptroller of the Currency Hsu, and DOJ Antitrust Division Assistant Attorney General Kanter.
Image: Pexel.
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