Capital One headquarters in McLean, Virginia, on February 20, 2024.
Brendan Smialowski | AFP | fake images
capital oneThe successful acquisition proposal of Discover Finance It includes a $1.38 billion breakup fee if Discover decides to pursue another buyer, but not that fee if U.S. regulators cancel the deal, people with knowledge of the matter told CNBC.
Capital One said late Monday it had an agreement to buy rival credit card player Discover in an all-stock deal valued at $35.3 billion.
While Discover cannot actively solicit alternative bids, it may consider proposals from other deep-pocketed bidders before shareholders vote on the transaction.
In the unlikely event that Discover decides to pursue another offer, it would owe Capital One $1.38 billion, which aligns with the typical breakup fee on bank deals of between 3% and 4% of the transaction value. , the people said.
Breakup fees are an industry practice designed to motivate both parties to an acquisition to close the transaction. They can lead to massive payouts when deals fall through, such as the estimated $6 billion AT&T paid T-Mobile after abandoning its acquisition effort in 2011 due to opposition from the U.S. Department of Justice.
Observers of the Capital One deal are taking particular interest in whether U.S. banking regulators will allow this to happen. Regulators have blocked cross-industry deals in recent years on antitrust grounds, and making a transaction during an election year in an environment seen as hostile to bank mergers has been called uncertain.
Neither party will owe the other a breakup fee if regulators block the acquisition, which is said to be typical of banking deals. Still, Canadian lender TD Bank last year agreed to pay $225 million to First Horizon after its acquisition collapsed amid regulatory scrutiny of the larger company.
When asked about the “intense regulatory environment” for this deal during a conference call Tuesday, Capital One CEO Richard Fairbank said he believed it was “well positioned for approval” and that the companies had been kept informed. to their regulators.
Capital One needs to get approval from the Federal Reserve and the Office of the Comptroller of the Currency for the deal to go through. The Justice Department also has the right to comment on the acquisition and can litigate to block the transaction.
The deal came after Capital One approached Discover and did not include a broad search of all potential bidders, according to one of the people.
—CNBC's Alex Sherman contributed reporting.
