Capital One closes on acquisition of discover

Markets are still digesting what this mega merger means for Capital One stock.

Capital One Financial (NYSE: COF) officially closed Sunday on its $35 billion acquisition of Discover Financial Services.

The deal was first announced last February and while it had to jump through many regulatory hoops, it was finalized on May 18.

Investors were mostly unmoved by the news, as Capital One stock was flat on the day. But the closing date had long been anticipated, so investors have had months to digest it. During that time, investors appear mostly bullish as the stock has risen 21% over the past month and 11% year-to-date.

By comparison, bank stocks, as measured by the KBW Bank Index, are up only 3% YTD.

While the Discover brand will continue as part of Capital One, it will no longer trade as a public company.

“This deal brings together two innovative, mission-driven companies that together are poised to deliver breakthrough products and experiences to consumers, businesses, and merchants,” Richard Fairbank, founder and CEO of Capital One.

Capital One is the nation’s ninth largest bank as of March 31 with about $493 billion in assets. It is also the third largest credit card issuer and generates most of its revenue from its credit cards. Discover is the country’s 27th largest bank with about $145 billion in assets as of March 31. It is also one of four major credit card providers, with its own closed-loop network where it is both lender and issuer.

What’s next?

For now, Capital One and Discover customer accounts and banking relationships will remain as they are, unchanged. The company said that customers will be informed of any changes in advance. Until then, customers do not need to take any action.

Capital One plans to continue to offer Discover credit cards, branded as Discover cards, alongside their own Capital One issued credit cards. Further, Discover’s Pulse debit cards and Diners Club International networks will continue to operate under their own brands.

“I am particularly grateful for the leadership and partnership of Discover’s Board of Directors, its Executive Management Committee, and interim CEO Michael Shepherd. Their advocacy for Discover and its customers, and our shared commitment to a successful closing were instrumental in achieving today’s milestone. Through the efforts of thousands of associates across Capital One and Discover, we are well-positioned to continue our quest to change banking for good for millions of customers,” Fairbank said.

Capital One expanded its board from 12 to 15 and appointed Shepherd, Thomas Maheras, and Jennifer Wong from Discover’s former board to serve on the Capital One board.

Wall Street analysts rate Capital One stock as a buy, with a median price target of $223 per share, which suggests 13% upside from the current price. Capital One stock is trading at just 16 times earnings.

For now, its business as usual, but investors may want to wait for more information, specifically on how the two credit card networks will integrate.