Capital One-Discover merger wins shareholder approval

Shareholders in Capital One Financial and Discover Financial Services voted nearly unanimously Tuesday in favor of the combination of the companies, which would create the largest credit card lender in the country.

Capital One is still awaiting regulatory approval to close its $35 billion acquisition of Discover, which it first announced almost a year ago to the day. But the tally of support from stockholders marks another milestone in the contentious saga over whether the deal should be approved. 

McLean, Virginia-based Capital One said Tuesday that it still expects the deal to close in early 2025, pending green lights from the Federal Reserve and Office of the Comptroller of the Currency, as well as “customary closing conditions.”

Capital One has also been working closely with the Department of Justice, which advises the Fed and OCC on antitrust and competition aspects of the transaction, Capital One CEO Richard Fairbank said on the company’s earnings call last month.

“It’s a long labor, but we remain well-positioned to get approval of the deal early this year,” Fairbank said.

The termination date of the merger agreement, which had previously been listed as Feb. 19 of this year, has been extended to May 19, per terms of the agreement.

Capital One’s proposed acquisition has faced pushback from lawmakers, consumer advocacy groups and legal analysts since it was announced. Critics have argued that the transaction should be rejected on antitrust grounds, claiming that the combined company would limit options for subprime borrowers and would fail to meaningfully pull its weight against the giants of the payments industry.

Fairbank contends that the absorption of Discover and, importantly, its payment rails, will enhance competition by creating a more robust player against Visa and Mastercard. Capital One has also said it will still be fighting against credit card heavyweights like JPMorgan Chase, American Express and Citigroup.

In December, Capital One locked down approval from the Office of the Delaware State Bank Commissioner, which oversees the state-chartered Discover.

The two companies have had to clear several other hurdles to get to this point. Discover agreed to pay $1.2 billion to resolve a lawsuit by merchants alleging that it overcharged them for years, an issue that contributed to the ouster of its former CEO. The company also had to refile its 2023 annual report with the Securities and Exchange Commission to correct an accounting error that had led to the overcharging of businesses. 

But the deal may now be past such snags, due to both the two companies’ efforts over the last 12 months, and the potentially less-rigid stance on bank mergers from the Trump administration.

While the consolidation-skeptical Biden administration had ramped up scrutiny of big bank deals, Trump-era leaders appear poised to walk those measures back.

On Tuesday, Rodney Hood, who was named acting Comptroller of the Currency earlier this month, said he plans to reach out to the DOJ to revise a certain measure of competition, known as the Herfindahl-Hirschman Index, so mergers have a higher chance of approval. 

Ian Katz, managing director at Capital Alpha Partners, wrote in a Tuesday note that the Capital One-Discover deal could be approved before the Senate confirms the OCC’s new head and the Fed’s vice chair for supervision. The latter role will be vacant as of Feb. 28, if Michael Barr’s successor isn’t confirmed sooner.