On February 20, 2024, Capital One is headquartered in McLean, Virginia.
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capital oneblockbuster acquisition proposal Explore Finance People familiar with the matter told CNBC that Discover would pay a $1.38 billion breakup fee if it decided to partner with another buyer, but would not have to pay the fee if U.S. regulators terminated the deal.
Capital One said late Monday there is an agreement Acquired credit card rival Discover in an all-stock deal valued at $35.3 billion.
While Discover cannot actively solicit alternative offers, it can consider proposals from other deep-pocketed bidders before shareholders vote on the deal.
In the event Discover decides to accept another takeover bid, it would owe Capital One $1.38 billion, which would be in line with a typical breakup fee in a bank deal, which amounts to 3% to 4% of the deal value, people familiar with the matter said.
Breakup fees are an industry practice designed to incentivize acquiring parties to complete a deal.When deals fall through, they can result in huge payouts, as expected AT&T pays T-Mobile $6 billion The company abandoned its acquisition efforts in 2011 due to opposition from the U.S. Department of Justice.
Capital One observers are particularly concerned about whether U.S. banking regulators will allow it to happen. Regulators have blocked cross-industry deals in recent years on antitrust grounds, and during an election year, completing deals in an environment considered unfavorable to bank mergers was seen as uncertain.
If regulators block the acquisition, neither side will owe the other a breakup fee, which is said to be common in banking deals.Nonetheless, last year the Bank of Canada TD Bank agrees to pay $225 million to First Horizon Its acquisitions fell through due to regulatory scrutiny of larger companies.
Asked on a conference call Tuesday about the deal’s “strict regulatory context,” Capital One CEO Richard Fairbank said he believed he was “well-positioned to receive approval,” And these companies have informed regulators of the situation.
Capital One needs approval from the Federal Reserve and the Office of the Comptroller of the Currency to complete the deal. The Justice Department also has the power to comment on acquisitions and can file lawsuits to block deals.
The deal occurred after Capital One approached Discover and did not involve an extensive search of all possible bidders, a person familiar with the matter said.
—CNBC’s Alex Sherman contributed reporting
