Capital One-Discover deal awaits regulatory approval

Capital One (COF) has agreed to acquire Discover Financial Services (DFS) in an all-stock transaction valued at over $35 billion. The deal aims to strengthen Capital One's position in the competitive credit card industry. However, the potential merger still requires regulatory approval before it can be finalized.

Yahoo Finance's Rachelle Akuffo and Akiko Fujita break down the details.

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Editor's note: This article was written by Angel Smith

Video Transcript

- Well, the big deal today Capital One saying it will buy Discover Financial in a $35 billion all-stock deal, creating a giant credit card network giving both companies a leg up to compete with giants like Chase and American Express. A big deal to kick off the week here, Rachelle. Obviously, Capital One combined-- this combined company would allow them to compete for the biggest or the most dominant payment networks.

But I wonder if you can put up this chart that points specifically to the processing volume because that shows you where the competition stacks up right now, not just against the credit card companies but also the bigger banks. You see Chase at the very top there, American Express, Citi and then Capital One at number four. So if, and there's a big if here because they still have to get regulatory sign off, if this deal goes through, could be a big shakeup in the space.

RACHELLE AKUFFO: It's true. I mean, and it's expected. At least Capital One estimates that this is going to close late 2024 or early 2025. Worth noting because it's always good to look at some of the bigger investors here, Berkshire Hathaway as its seventh largest shareholder in Capital One. A lot of people are wondering what does this mean. If you're a card holder, at least at this point, obviously, as we mentioned, regulators are still going to have a close eye on this. Don't expect any changes anytime soon.

But in terms of how this synergy might work, some analyst feedback here. David Robinson, who's head of the Nilson Report, that's a payment card industry trade journal. He was actually saying he sees good synergy because Discover cards mostly focus on cash-back cards, Capital One it's a variety of rewards there. And he says this might allow for better programs for consumers.

And then from Baird equity research, they said that could also mean better cost-cutting. When you have a company that big with that sort of scale you get both of the benefits and perhaps can do some trimming there in terms of costs. So definitely an interesting one to watch, I'm sure. Regulators, of course, always watching closely with these.

- Yeah, the biggest deal announcement so far this year, but you do have to wonder if this is kind of a sign of things to come. Something we've been talking about for some time whether the M&A activity really starts to kick up as well.